Mobile Economy

E2M Commerce

China is large and though one would associate such a large entity with stagnation and an inability to move quickly, it is truly amazing how dynamic things are within the Chinese system. One aspect of Chinese dynamism that is worth noting is the rapid evolution of its e-commerce into mobile commerce, or, ‘m-commerce.’

By 2015, China ranked number one in e-commerce with a total transaction value of $672 billion, not surprising given its population size. However, it was China’s lack of proper retail infrastructure that proliferated the adoption of e-commerce in the first place. And not too long after, traditional e-commerce was increasingly being replaced by m-commerce.

The rapid evolution of e-commerce to m-commerce in China can be attributed to two reasons. Firstly, smartphones, especially when purchased from local Chinese telecom companies, are more affordable than the average laptop or desktop. Generally, most of China’s wealthy middle-class citizens are concentrated in first-tier cities along the eastern coast: Beijing, Shanghai, Guangzhou, and Shenzhen. However, as investments and development start to move westwards, constituents pertaining to second-tier cities and rural villages are increasingly connecting online, and how are they doing so? Using the most affordable device available–the smartphone. In 2016, around 80% of new users accessed the internet through a smartphone rather than other devices.  

The second reason attributable to the widespread success of m-commerce in China is the plain fact that smartphones are portable, and therefore they are more often than not on us and within reach. Research shows that the average owner of a smartphone checks his or her phone approximately 85 times per day, which translates to five hours of daily phone usage. This is important because the more people spend time on their phones, the more they are likely to engage in some kind of commercial transaction. Given China’s scale and observed consumer characteristics (will be discussed in further section), this has had a profound effect on the development of China’s mobile economy.  

2015 Singles’ Day Festival:

Global appreciation of China’s weight in m-commerce can be traced back to the 2015 Singles’ Day Festival.

In China, Singles’ Day is an online shopping sales bonanza akin to both ‘Black Friday’ and ‘Cyber Monday’ in the United States. It is meant to celebrate the single individual and has the same vibe as the popular tagline ‘treat yo self,’ in North America. Singles’ Day became the largest shopping day in the world when in 2015 total sales reached a shocking $14.3 billion. However, Singles’ Day easily managed to beat its own record in 2016 when sales reached a value of $17.8 billion–that specific day alone generated a transaction value larger than Brazil’s e-commerce scene for the whole of 2016.

Besides the staggering value of total sales, Singles’ Day proved the E2M movement when Alibaba, one of three Chinese giant internet companies, revealed that transactions made using a mobile device doubled from the year 2015 to 2016. While in 2015 approximately 40% of total online transactions were conducted using a mobile phone, that number hiked up to 82% in 2016. To compare, sales made using a mobile device on Black Friday in the United States accounted for 48% of total sales; only an 8% increase from 2015.

Get John Oliver’s take on the 2015 Singles’ Day Festival:

https://www.youtube.com/watch?v=Nil48asYKwo

Characteristics and expectations of the Chinese M-consumer

What do Chinese consumers care about? What is their observed behavior when it comes to the online economy? What are their expectations and how do they differ from what we are used to, here in the West? This section will zoom into mobile consumers to get a sense of the individuals who collectively make up the grand demand in the Chinese mobile economy.

When it comes to observed behavior, an analysis conducted by PwC in 2016 reports that Chinese consumers are willing to experiment and adopt new technologies at an early stage. Furthermore, they are active in providing performance feedback and are well connected amongst each other. Perhaps the best illustrator of China’s active online consumer base is the Xiaomi story. The Xiaomi case illustrates a remarkable example of a company flourishing in large part due to a dedicated and interactive Chinese online consumer base.

Xiaomi is commonly referred to as the Chinese equivalent of Apple. It was only just founded in 2010 but has already made a considerable impact on the global smartphone market; by 2014 it was the third largest seller of smartphones in the world after Apple and Samsung. What greatly differentiates Xiaomi from other smartphone producers is that it prices its smartphones at almost a third of the cost of the average phone. How in the world does it manage to do that?

One way Xiaomi keeps costs low is by leaving a large part of the development and enhancement of their products to online consumers. Xiaomi’s ‘About’ page literally claims to “…create remarkable hardware, software, and internet services for and with the help of Mi fans.” And they are not kidding. For one, the company started out strong whilst having no physical store available and has instead created a dedicated e-commerce platform where Chinese consumers could go to instantly message Xiaomi developers regarding glitches and feature recommendations. Product feedback is such an integral part of the business that consumers can expect their feedback to be implemented in around one to two days. Furthermore, Xiaomi enlists around 10% of their consumers to what they call their ’beta track.’ Through this platform, enlisted consumers choose to receive software updates with new features every Friday, some of which are only half-developed. This approach towards product development allows Xiaomi to continue keeping its product price low while essentially innovating products for the people, by the people.

The extent of fin-tech in China

Chinese mobile consumers are experiencing a lifestyle in which they have the tools to move money around much more easily than what one is used to in the West. China’s internet boom has led to a series of third-party payment systems that have sprung up to support the E2M commerce scene. To this extent, Chinese mobile consumers expect and enjoy plenty of options and subsequent flexibility in conducting money transfers and transactions. This is in large part due to the degree of trust Chinese consumers have towards China’s third-party payment options.

Apart from cash and bank cards, Chinese consumers currently adopt on a daily basis two forms of electronic payment options each of which is used for different transaction scenarios: Alipay and Wechat Pay.

Alipay:

Alipay is a third-party payment platform provided by the Chinese internet giant Alibaba. Alipay was originally developed in 2004 similar to Paypal in order to provide Alibaba’s customers with a quick and reliable online shopping payment tool, however as of 2016 it has since then developed to become a secure electronic payment option for 400 million users around the world and is perhaps more accurately described as a financial manager app promoting a ‘no-cash society.’ Most people in China when shopping online or in physical stores will use Alipay. An analysis conducted by KPMG in 2016 revealed that when it comes to online shopping, Alipay along with credit cards are still the most preferred methods of payment and that customers will decide which online platforms to buy from based on whether these payment options are available to them.

In the offline shopping scene, Alipay is just as widely accepted as cash. From local convenient stores to luxury brand stores, Alipay is a mainstream accepted method of payment; customers simply have their phones on hand with the Alipay QR code ready for scanning by store clerks. Furthermore, an increasing number of countries across East Asia and Southeast Asia are accepting Alipay as a payment in order to accommodate Chinese tourists and expats.

Wechat Pay:

Wechat Pay is another popular avenue whereby Chinese m-consumers may enjoy financial flexibility. Wechat is mainly a social media platform where one can chat with close circle of friends much like a combination of Whatsapp and Facebook, however, integrated into Wechat is a payment platform known as Wechat Pay. One can upload their bank account number into Wechat Pay to make direct transactions through various forms.

A highly practical component made possible through Wechat pay is the causal transfer of money amongst one’s Wechat contact list. Once can send money via direct messages or by using the ‘quick pay’ function which displays a QR code ready for scanning. A newer feature called  ‘Go Dutch’  comes in handy when, for instance, one goes out for a meal amongst friends and everyone ends up short of money except for the one person who happens to have enough to cover the whole bill. In this scenario, upon payment of the bill, that person can then use the ‘Go Dutch’ feature to specify the total amount owed as well as who owes what portion of the bill. This feature will then keep track of who has paid their portion of the bill as well as who still owes money. Apart from ‘Go Dutch’ Wechat offers a crowdfunding option whereby people from one’s contact list can transfer money to meet one’s objective. Furthermore, services powered by third party operators are offered within the Wechat wallet feature where one can use Wechat Pay to engage in services such as renting a bike, ordering a taxi, ordering food, requesting home services, booking flights and so on.

Unlike Alipay, Wechat is still not accepted in all offline stores, in the sense that luxury brand stores, for instance, will most probably not provide Wechat Pay as a payment option. So far, Wechat Pay is accepted in convenient stores and local restaurants and so it has more of a casual feel to it. Unlike Alipay, Wechat Pay caters to more informal means of money transfers such as the flow of money between family and friends or crowdfunding through social network connections.

Express Delivery in China: When “Kuai Di’ is practically free.

Finally, Chinese m-consumers are experiencing a lifestyle in which express delivery, locally known as ‘kuai di,’ is the norm. They are increasingly living a kind of lifestyle where they can order a single juice item online and have it delivered to them practically for free at their doorstep.

From an economic perspective, China has naturally endowed characteristics that make it an e-commerce haven. As discussed in our E2M section, its lack of proper retail infrastructure has created the opportunity for e-commerce and m-commerce to flourish rapidly. One other characteristic is that China is endowed with a massive labor market, and therefore not only is China massive and relatively unorganized in terms of retail infrastructure, it also has a surplus of labor that makes express delivery at low cost a reality. It is no wonder that Chinese consumers often find it cheaper and more practical to purchase things online. Regionally, the express delivery industry is concentrated in the eastern part of China; anyone casually observing the streets in any one of China’s eastern cities will be sure to notice motorcyclists in uniforms of different colors, hastily and gracefully maneuvering past cars caught in traffic as they aim to compete for time. It genuinely is a sight.

Baidu eats
Iconic red motorcycle of Baidu Eats, an express food delivery service company in Shanghai

The express delivery industry has been booming along with China’s digital boom. Statistics show that annual growth in the volume of China’s express delivery has increased by approximately 500% from the year 2012 until 2016. Specifically, the total volume of items delivered has increased from 5.7 billion items in 2012 to 31.3 billion items in 2016. The annual growth in the volume of China’s ‘kuai di’ solely based on the year 2015 to 2016 demonstrates a 51% growth indicating that the industry is still growing at a double.

Currently, China’s overall express delivery industry is still at a young stage despite the massive scale and impact it is already making. There are thousands of competitors in the market and major obstacles concern security and reliability especially when it comes to special event days where the volume of online shopping increases above average.

Kuai Di
An express delivery employee sorting packages in the middle of the street near Zhongguancun, Beijing

Baidu, Alibaba, Tencent (BAT)

A decent understanding of China’s mobile economy is unrealistic without first understanding the dynamics of BAT.

Baidu, Alibaba, and Tencent are the three dominating internet leviathans that currently compete to acquire the largest share of the Chinese online market. Most often, Baidu is termed as the Chinese equivalent of Google, Alibaba as Amazon, and Tencent as Facebook, however, these are just basic generalizations to get one acquainted with the idea. In reality, all three internet giants are making investments in many aspects related to the internet. To get one acquainted with the basics, however, this section will focus on what the companies are most popularly known for.

Baidu Inc.:

Baidu is primarily recognized as the ‘Google’ of China both as the primary Chinese search engine and as an online map developer. According to Baidu, online searches made from desktops and laptops were outnumbered from searches made from smartphones as of 2014. This movement led to Baidu’s development towards Baidu Maps and location-based services through partnering with various merchants in order to obtain and disclose merchant information for users (Ma, 21).

Baidu heat map
Baidu heat map showing the largest human migration in history

In 2014, Baidu managed to visually represent the world’s largest human mass migration in history during the Chinese New Year Spring Festival. In the New Year holidays millions of people return home to their families in villages over just a couple of days. The interactive heat map, called Baidu Migrate, was designed to obtain data from smartphones via Baidu Maps, and other apps with location-based services, to track the millions of users migrating around China during the Spring Festival. Baidu Maps, therefore, developed a ‘Spring Festival ‘tool kit’ in order to provide users with information regarding the traffic conditions, weather conditions, flight and railway schedules of each city (Ma, 21).  

Alibaba:

Alibaba Group Holding Limited is the parent of many different internet oriented companies, however, it is most popularly known for having the most dominant e-commerce retail business to date with a gross merchandise value (GMV) larger than Amazon and eBay combined. Alibaba’s weight has been carried over to the mobile economy when in 2014 it owned a majority (86.2%) of the online mobile retail market (Ma, 23).

The retail giant is present in the e-commerce world through two of its online marketplaces–Taobao and Tmall. Taobao is best described as an equivalent to eBay. It is a consumer-to-consumer (C2C) retail platform where individual entrepreneurs and small businesses can sell their products online. Taobao is the place to go if one is looking for absolutely anything that would be found amongst 760 million listed items. Take that in. 760 million. One can even buy space travel tickets on Taobao. In 2016, luxury space travel tickets via the Dutch firm Space Expedition Corp were being sold on Taobao for approximately $96,500.

PIKTOCHART TAOBAO
piktochart.com

Although Taobao’s sale of tickets to space catered solely to the wealthy, it is otherwise most popularly regarded in a way similar to how many may view their respective all-you-can-buy store; a familiar place where one visits to purchase one specific item but ends up having a cart full of unnecessary products one has managed to convince themselves they need. Tmall, on the other hand,  is a business-to-consumer (B2C) platform where Chinese consumers can find higher end luxury brands.

Alibaba also offers a Paypal-like service in order to complement its online marketplaces through its app Alipay. Alipay is the leading electronic payment platform in China, though other electronic payment services provided by instant messaging apps such as Wechat are currently gaining prominence. More on these two payment options is discussed under ‘characteristics and expectations of the m-consumer.’

Tencent Holdings Limited:

Tencent specializes in social networking and online entertainment, however, they are most popularly known for Wechat.

Wechat originally developed to be an instant messaging application with the original voice-note feature, has now developed into a multi-platform app where one can essentially engage in services such as video messaging, money transferring, taxi-hailing, online gaming, flight and hotel booking, and many other services. Also integrated into Wechat is a ‘membership cards’ and ‘offers from friends’ component where one can collect and store virtual discount coupons and recommended offers from friends.

This is interesting because essentially what is integrated into this platform is a commerce-encouraging digital atmosphere. If one happens to walk into a 7/11 equivalent in China, called Family Mart, they are able to pay by scanning their QR code via Wechat Pay. This is, of course, nothing new since we have a comparable equivalent–Apple Pay. However, Apple Pay has not been adopted as thoroughly and widely by the market, yet. Furthermore, Wechat has adapted its platform to the diversity in merchant-capacity. In China, for instance, apart from official stores you will no doubt come in contact with a plethora of street vendors selling anything from fried squid on a stick to electronic parts. These merchants often do their business in a relatively informal and less institutionalized manner; they do not have the instruments to conduct credit or debit related transactions. Wechat gives them the potential to engage in transactions slightly more informally through money transfers within chats. This is also becoming the case between customers and family-owned restaurants often visited.

Competition for the e-ecosystem:

The three internet leviathans make up the fierce competition within the Chinese mobile economy, however, each of them still served to be an integral part of the other. For instance, let us consider the hypothetical scenario below:

Consider the process of Bob wanting to purchase a water bottle online; Bob has already been through three water bottles in the time span of two months–water bottles just don’t seem to last these days. Bob has decided to invest a sum of money larger than he would have usually invested in a water bottle; this time he is determined to get one of better quality. He may start out by searching ‘top ten most reliable water bottles’ on Baidu. After some thought, he will have decided on a specific product. Perfect, let’s get on Taobao to see if it is available. Ahh, there it is! At this point, Bob remembers that his friend Betty is also in need of a water bottle, so he sets the quantity to two. Order is set, delivery is less than a $1.00. Incredible.

Day 2: Bob receives his water bottle along with Betty’s. He takes a selfie with the two new water bottles and sends it to Betty via Wechat. Betty thanks him and transfers him the money he spent on her water bottle through Wechat pay. Bob declines and insists it was nothing. They are now dating.

The process of buying a water bottle was a little dramatized in the above situation, however, the main point is that each of the three internet companies is in some way reliant on one another; each of the companies served a purpose in Bob’s journey online.

These dynamics are changing. Although Baidu, Alibaba, and Tencent all initially focussed on developing different aspects of the mobile economy, such as an online search engine, e-commerce platform, and social media and entertainment, they are now all powerful enough to engage in fierce competition to gain the largest share of the Chinese online market. The idea is for each of them to provide services that cater to the consumer throughout every step of the consumption chain; services that contribute towards making the Chinese lifestyle as effortless, practical, and efficient as possible.

Securing a Digital Footprint

If you ever have the opportunity to visit China, you will notice a strong attempt to connect people into China’s mobile economy. For example, when visiting a local food joint equivalent to our Mcdonalds, instead of giving out physical ‘stick-on’ cards for consumers to collect x number of McCafe stickers in order to get a free one in the future, you will most likely see QR codes advertising discount promos, prizes, and competitions in the form of online games.

QR-CONL.png

The increased digitization of services in China will only lead to increased dependency and growth of China’s mobile economy. Its scale and impact currently have local and multinational corporations investing in developing mobile platforms for the Chinese market. The more investment goes into mobile services, the more practical and attractive they are, and consequently, the more people use them. The more people use these mobile services, the more investment goes into them, and so begins a reinforcing cycle leading towards increased development of China’s mobile economy.