Akio Tanaka of Infinity Venture Partners moderated a discussion on investment opportunities in mobile yesterday at GMIC SV. The panelists represented globally active funds, including Jeff Clavier from SoftTechVC, John Malloy from BlueRun, Pete Moran of DCM, and Jeff Richards from GGV, with the latter three especially focused on the Chinese market.
Tanaka framed the conversation by presenting data on the global mobile market, with the US in the lead for downloads and overall app revenue, but Japan outstripping the US 4 to 1 in terms of average revenue per user. The offices of some of the firms represented on the panel roughly mapped to the top countries represented on the chart.
On “going global”, the panelists agreed that it was a popular buzzword but easier said than done. While app stores represent much easier channels into a new market than working with local OEM’s or carriers, downloads don’t equal sustainable businesses. John Malloy pointed out that every new market holds a multitude of competitors with greater understanding of the local market, and that the human capital toll of building organizations in multiple countries is even more challenging. While tricks and techniques exist to acquire mobile users, they key, according to Jeff Clavier, is “having a great application so that they [users] will come back.” Launching an app in a new store is only the first step, as building a service that can also fulfill a local market need, building a team that can support users, and developing a multi-platform strategy are also essential.
Chinese companies going to the US and American companies entering China was also a recurring theme during the talk. Big players like YY and Tencent are proactively moving to the US, but there are opportunities for Chinese startups as well. While Dolphin browser is based in Wuhan, most of its users are in the US, representing a new breed of companies where the country of origin differs from the target market. Pete Moran also cited Pokelabo, a developer based in Japan with multiple games in the US Top 10, even though it is not a top player at home.
Jeff Richards observed that even early stage American startups have ambitions for China. “Today, every mobile company I meet in the US has China on their list, it would be hard to argue that you want to limit yourself to just the US market when you have a giant market in China and Japan as well.” However, US entrepreneurs have to re-adjust from considering 3-4MM users to be a hit (i.e. Path at 4MM users) to the tens of millions of users needed to show significant traction for an app in China. But the Chinese market holds huge potential, with 400 million existing mobile users and 400-500 million more that will come online as purely mobile Internet users in the coming years.
Despite the increase in cross-border activity, the road is fraught for companies making the leap across the Pacific. Pete Moran cautioned, “I can name far more failures than I can successes in terms of global expansion.” Regional expansion may be easier for some, with Chinese companies expanding more easily into South East Asia than into the US.
Monetization currently represents one of the larger barriers to global product deployment, with each market requiring a different set of partners and payment systems. Until recently, most of the iOS users in China had no way to pay for apps, and only a limited number of payment platforms have online banking licenses from the government. Each market has a different set of partners and payment systems required, and local competitors may even actively undercut the business model imported by a foreign competitor. John Malloy, speaking from his experience as a Paypal investor, noted that Alipay made the environment almost impossible for Paypal by cutting down the margin it took on transactions. In China specifically, cloud services are also a major problem. “It is very frustrating to deploy services there and requires a very long negotiation process,” Malloy said.
On the future of mobile, Akio Tanaka mentioned that one key trend in Asia was the use of instant messaging and the relational data it provides as the basis for gaming and social networking services, citing Line in Japan and KakaoTalk in Korea as examples. Pete Moran threw out the potential for apps to extend human senses beyond just sight, sounds and communication, mentioning ChatPerf, an app that allows users to capture and share smells. Another company in Japan is even attempting to extend advertising into the subconscious, with an app that can help users dream desired dreams, with sponsored branded dreams in the horizon.
While market potential in China and the U.S. were enthusiastically endorsed during the discussion, there was little mention of India. In response to a question by the audience, the panelists unanimously responded that they had no interest in India’s mobile market. As John Malloy explained, India will become an exciting opportunity only once 3G and 4G have been widely deployed there.
Asked to provide some general advice for startups, they offered the following: the simplest businesses often do the best (ex: Starbucks reinventing coffee), cautioning startups not to raise to much money too fast. “You cannot skip the steps to creating great companies,” remarked John Malloy referencing Color as a recent example of a “horror story” in this category. Jeff Richards also advised companies to take money only from VC’s who understand the business and share a similar vision for its direction; otherwise the potential for conflicts two to three years down the road is high.