A: First, we see the shift towards HTML5 games, instead of app-based games. We see great developers and cool teams creating some amazing casual products. Second, we are seeing new ways of monetization to convince users to spend a bit of money to play the games.
Thirdly, we are seeing innovative distribution platforms, such as Pengpeng, which is a chat application integrated with games. It seems to be resonating with consumers and growing very rapidly.
Lastly, people begin to realize that game elements and mechanics seem to have applicability on other verticals, such as education, e-commerce or social networking.
Q: You’ve also invested in Juesheng.com, an online education platform. Why did you invest in this company, as there are so many online education start-ups in China?
A: Juesheng.com is a marketplace (of education services), rather than an online education product or app. Users can find, compare, purchase, review and rank educational products on the platform.
It adds value by providing rankings, the ease of buying a product and providing guarantee to users.
Q: I see that you really love platforms…
A: Yes. My co-founder at Qunar likes to do a detailed study of the value chain before he makes an investment. If he sees some fragmentation, he thinks a platform play makes sense. That was a key learning.
If it’s not as fragmented, then maybe you need to be a service provider, instead of a platform. Maybe. It could be, especially if you are the first player in an industry.
Q: What is your view on China’s O2O (online-to-offline) sector? Which vertical does it work the best?
A: On a macro level, it’s still exciting. There is a big part of the economy that’s inefficient. There are lots of capital and talents focused on providing solutions.
However, O2O doesn’t work for everything. The Uber of everything does not exist. For things like home cleaning service and manicure that are high involvement and has a trust element, it’s probably not going to work. But for food delivery, which is low involvement, it makes more sense.
Q: People jokingly say that the future belongs to the young, but the future ultimately belongs to the BAT (Baidu, Alibaba, and Tencent). Will other Chinese technology companies challenge the BAT?
A: The BAT have shown an incredible level of entrepreneurship. These are large well-established companies making a lot of money but they continue to innovate. The future of these companies is clearly very bright.
Who can disrupt these established players? I think what might most likely happen is we will have the BAT, and maybe another three companies that are all worth over US$100 billion.
I think Ctrip-Qunar will absolutely be worth a huge amount of money in a few years as they corner the travel distribution market. Clearly, Xiaomi is already a massive company. Didi Kuaidi may be another one. Maybe there will also be an independent payment company.
So it will be an alphabet of exceptional companies, each worth US$50 billion to US$100 billion. I think that “alphabet soup” alone could mitigate what can be described as the unfair market power of the BAT today.
Q: Today, the BAT’s combined market capitalization is less than Google’s. You see the Chinese giants catching up and outgrow their U.S. peers?
A: Absolutely. Some people think that Alibaba will be the most valuable company in the world in ten years.
It’s hard to argue with that (the Chinese technology companies will outgrow their U.S. peers). There is a very long runway of opportunity for BAT and other companies. There are entrepreneurs today that we have never heard of, who will become some of the most prestigious and respected people in China.
Let’s also not forget that many Chinese companies are already global leaders. Qihoo 360 is a global leader in what they do. Wechat is way ahead of Whatsup in terms of functionality and how they provide services to consumers.
Q: So you would think it’s still a good time to invest now?
A: It’s difficult to time the market. Right now, people ask: Is there a slowdown? Is there too much money? To me it’s hard to tell.
Instead of being distracted by all those questions, just try to be very consistent in your approach to China. If you find a great company, might just as well invest. Maybe you don’t like the valuation that much, but if it’s going to be a great company, who cares?
When things are bad, then obviously you still want to keep investing because you know the runways are long.
Q: My next question was going to be asking if you are optimistic about China’s long-term economic future. Guess it’s needless to ask now as you are obviously very optimistic?
A: I’m long-term optimistic. Will there be volatility? Yes. Will things slow down? Some sectors will and others might speed up. What we hope is that the economy continues to restructure, and consumers continue to demand higher quality products.
There are challenges but also immense opportunities. Every prudent investor should diversify. I’m not saying that you should put all your eggs in China, but everyone needs a personal China strategy. Within the next 20 years, every single person I know will have to be doing something in China one way or another. So it’s better to get involved earlier rather than later.
Q: Last time you mentioned a company you invested in named Wodache, a ride share company. I saw that the company is no longer in existence. What happened?
A: Well, we had the right strategy but execution may not have been flawless. There was strong competition from other exceptional entrepreneurs, and we were not the first in the market.
The lesson I learned is that execution is extremely important. For us and the other 25 investors, we should have thought more carefully about how can we execute the plan and bring in elite talent to make it happen. But it may not have been our priority when we invested.
About Fritz Demopoulos:
Fritz Demopoulos is founder of Queen’s Road Capital. He previously co-founded Chinese sports portal Shawei.com, and sold the company to Tom.com for US$20 million in 2000. Then he founded Qunar.com, a travel search engine portal recently combined with Ctrip.com International.