Will U.S. and Chinese platform leaders battle it out for market domination? Kai-Fu Lee, author and CEO of the Chinese venture capital firm Sinovation Ventures, doesn’t think so.
Chinese entrepreneurs would do well to prioritize new technologies for local markets where they understand the culture, language, and where there are great opportunities, he said at the recent MIT Platform Strategy Summit.
Lee has strong opinions — and predictions — about the Chinese technology market, AI, and digital platforms. In his 2018 book AI Superpowers, he wrote that the U.S. is losing the AI innovation race to China and that artificial intelligence, despite all its abilities, will never be capable of creativity or empathy.
Winners (Really) Take All
At the 2021 Platform Summit on July 15 Lee told IDE co-director Andrew McAfee that the fierce competitive environment in China results in powerful super-apps that encompass and overtake smaller competitors. “Platforms emerge in China in a tenacious, competitive environment [where players] fight to the death in a winner-take-all environment. And when I say winner take all, I really mean all,” he said.
For example, Lee said that while U.S., platforms such as Groupon and Yelp face “copycats,” the competition ends when Yelp or Groupon or OpenTable wins the most market share. But “the Yelp of China has had to compete with the Groupon of China, with the OpenTable of China, with the DoorDash of China, and eventually, only one survives,” he said. The result is a giant super-app with all of the functions of all of the companies. Users benefit from ease of use and convenience.
From Alipay to WeChat to TikTok
Even with this consolidation of power, Lee doesn’t think that China is encouraging monopolies. The marketplace is rapidly changing and
“in an ultra-competitive environment, everyone has to be extremely cautious and paranoid about [a new competitor] jumping in to eat your lunch.”
Lee cited examples such as the giant payment company Alipay, which was overpowered by WeChat Pay. He said WeChat jumped in and took away half the Alipay users in about six months. In turn, WeChat faced stiff competition from TikTok. “When you have tenacious, hungry entrepreneurs they will cross boundaries and keep everybody on their toes. So it really hasn’t stifled innovation,” he said.
If the pattern continues, new entrants will emerge and the ranking among existing powers will change again. This happens in America too, according to Lee, but less frequently and at a slower pace. In China, market leadership changes all the time, he said.
Lee contrasted a Silicon Valley culture “that really rewards and honors innovation and doing things no one has done before,” with a more pragmatic, tougher Chinese business ethos that encourages whatever helps the business. “In China you extend, extend, extend,” because it can lead to total platform power or a super-app market share.
Another Chinese trend to watch, he said, is the rapid pace of change in e-commerce and the growth of recommendations and endorsements that lead to impulse buying.
“Power is shifting from traditional e-commerce platforms” like Amazon, to social media and video platforms like TikTok. “That will happen in the U.S., too,” he predicted.
As an investor, Lee said he looks for killer apps on which platforms can be built over time. “I look for user interest in the app and how sticky it is;” that will lead to the next platforms.
Lee has a new book coming out this year, AI 2041, which he said “will tell you why the future with AI is actually going to be pretty good after all.” It’s a science fiction account of the future that he co-wrote with a Chinese fiction author.
Other key takeaways from the conversation included:
- Lee didn’t anticipate how fast new AI and platform technologies would be invented and replicated globally.
- Social media has contributed to negative views about AI. The good work isn’t covered. Generally, the Chinese are more open to new technologies than Americans; they like the benefits and convenience.
- The Chinese government is looking at how to regulate giant super apps; sometimes, regulation is necessary.
Read more about the Platform Strategy Summit here.