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Lessons from the hardware capital of the world
A week is obviously not enough time to truly understand a market as massive and fascinating as China. Hell, it’s not really even enough time to adjust to the 12-hour time difference from New York. That said, each of the three visits I’ve taken to the country in the past two years has yielded some useful insights into my role as hardware editor here at TechCrunch.
Late last week, I got back from an eight-day trip to Shenzhen in the Guangdong Province of South China and nearby Hong Kong. In some respects, the cities are worlds apart, though a newly opened high-speed rail system has reduced the trip to 30 minutes. Customs issues aside, it’s the height of convenience. Though for political and cultural reasons I’ll not get into here, some have bemoaned the access it’s provided.
This particular visit was sort of a scouting trip. In November, TechCrunch will be hosting its first Hardware Battlefield event in a couple of years. Previous events had been held at CES for reasons of easy access to young startups. This time out, however, we’ve opted to go straight to the source.
The birthplace of hardware
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Alibaba to help Salesforce localize and sell in China
Salesforce, the 20-year-old leader in customer relationship management (CRM) tools, is making a foray into Asia by working with one of the country’s largest tech firms, Alibaba.
Alibaba will be the exclusive provider of Salesforce to enterprise customers in mainland China, Hong Kong, Macau and Taiwan, and Salesforce will become the exclusive enterprise CRM software suite sold by Alibaba, the companies announced on Thursday.
The Chinese internet has for years been dominated by consumer-facing services such as Tencent’s WeChat messenger and Alibaba’s Taobao marketplace, but enterprise software is starting to garner strong interest from businesses and investors. Workflow automation startup Laiye, for example, recently closed a $35 million funding round led by Cathay Innovation, a growth-stage fund that believes “enterprise software is about to grow rapidly” in China.
The partners have something to gain from each other. Alibaba does not have a Salesforce equivalent serving the raft of small-and-medium businesses selling through its e-commerce marketplaces or using its cloud computing services, so the alliance with the American cloud behemoth will fill that gap.
On the other hand, Salesforce will gain sales avenues in China through Alibaba, whose cloud infrastructure and data platform will help the American firm “offer localized solutions and better serve its multinational customers,” said Ken Shen, vice president of Alibaba Cloud Intelligence, in a statement.
“More and more of our multinational customers are asking us to support them wherever they do business around the world. That’s why today Salesforce announced a strategic partnership with Alibaba,” said Salesforce in a statement.
Overall, only about 10% of Salesforce revenues in the three months ended April 30 originated from Asia, compared to 20% from Europe and 70% from the Americas.
Besides gaining client acquisition channels, the tie-up also enables Salesforce to store its China-based data at Alibaba Cloud. China requires all overseas companies to work with a domestic firm in processing and storing data sourced from Chinese users.
“The partnership ensures that customers of Salesforce that have operations in the Greater China area will have exclusive access to a locally-hosted version of Salesforce from Alibaba Cloud, who understands local business, culture and regulations,” an Alibaba spokesperson told TechCrunch.
Cloud has been an important growth vertical at Alibaba and nabbing a heavyweight ally will only strengthen its foothold as China’s biggest cloud service provider. Salesforce made some headway in Asia last December when it set up a $100 million fund to invest in Japanese enterprise startups and the latest partnership with Alibaba will see the San Francisco-based firm actually go after customers in Asia.
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Nintendo Switch might soon go on sale in China via Tencent
After months of anticipation, Nintendo Switch is ready to shed more light on its China launch. The Japanese console giant and Tencent are “working diligently” to bring the Switch to the world’s largest market for video games, the partners announced on Weibo (the Twitter equivalent in China) today.
The pair did not specify a date when the portable gaming system will officially launch, as the government approval process can take months. But there are signs that things are moving forward. For example, Tencent has been given the green light to run a trial version of the New Super Mario Mario Bros. U Deluxe and a few other blockbuster titles in China.
On August 2, the partners will jointly host a press conference for Switch — no product launch yet — in Shanghai, Tencent confirmed to TechCrunch. It appears to be a strategic move that coincides with the country’s largest gaming expo China Joy beginning on the same day in the city.
Tencent and Nintendo are hosting a media event on August 2nd 2019 in Shanghai for Nintendo Switch.
Steven Ma, Senior Vice President of Tencent and Satoru Shibata, executive at Nintendo, will attend.
Should be more details of Switch launch in China. pic.twitter.com/MULC7jMSqg
— Daniel Ahmad (@ZhugeEX) July 24, 2019
Sales of Nintendo Switch in China, made possible through a distribution deal with Tencent, will likely add fuel to Nintendo’s slowing growth. It can also potentially diversify Tencent’s gaming revenues, which took a hit last year as Beijing tightened controls over online entertainment.
Switch faces an uphill battle as consoles, including Sony PS4 and Microsoft Xbox, have for years struggled to catch on in China. The reasons are multifaceted. China had banned consoles until 2014 to protect minors from harmful content. The devices are also much less affordable than mobile games, making it difficult as a form of social interaction in the mobile-first nation.
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The need-to-know takeaways from VidCon 2019
VidCon, the annual summit in Anaheim, CA for social media stars and their fans to meet each other drew over 75,000 attendees over last week and this past weekend. A small subset of those where entertainment and tech executives convening to share best practices and strike deals.
Of the wide range of topics discussed in the industry-only sessions and casual conversation, five trends stuck out to me as takeaways for Extra Crunch members: the prominence of TikTok, the strong presence of Chinese tech companies in general, the contemplation of deep fakes, curiosity around virtual influencers, and the widespread interest in developing consumer product startups around top content creators.
Newer platforms take center stage
Photo by Jerod Harris/Getty Images
TikTok, the Chinese social video app (owned by Bytedance) that exploded onto the US market this past year, was the biggest conversation topic. Executives and talent managers were curious to see where it will go over the next year more than they were convinced that it is changing the industry in any fundamental way.
TikTok influencers were a major presence on the stages and taking selfies with fans on the conference floor. I overheard tweens saying “there are so many TikTokers here” throughout the conference. Meanwhile, TikTok’s US GM Vanessa Pappas held a session where she argued the app’s focus on building community among people who don’t already know each other (rather than being centered on your existing friendships) is a fundamental differentiator.
Kathleen Grace, CEO of production company New Form, noted that Tik Tok’s emphasis on visuals and music instead of spoken or written word makes it distinctly democratic in convening users across countries on equal footing.
Esports was also a big presence across the conference floor with teens lined up to compete at numerous simultaneous competitions. Twitch’s Mike Aragon and Jana Werner outlined Twitch’s expansion in content verticals adjacent to gaming like anime, sports, news, and “creative content’ as the first chapter in expanding the format of interactive live-streams across all verticals. They also emphasized the diversity of revenue streams Twitch enables creators to leverage: ads, tipping, monthly patronage, Twitch Prime, and Bounty Board (which connects brands and live streamers).
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India’s NiYO ‘neo-bank’ raises $35M to help blue-collar workers access financial services
NiYO Solutions, a Bangalore-based “neo-bank” that helps salaried employees and blue-collar workers access company benefits and other financial services, has raised $35 million in a new funding round to expand its business in the nation and explore international markets for some of its products.
The four-year-old startup, which serves small and medium businesses and other salaried employees across India, raised its Series B from Horizons Ventures, Tencent and existing investor JS Capital. It has raised $49.2 million to date, with its $13.2 million Series A closing in January last year.
NiYO Solutions serves as a “neo-bank” that relies on traditional financial institutions (Yes Bank and DCB banks, in its case) and offers to customers additional features such as lending and insurance. Blue-collared employees in India (and many other markets) continue to struggle in availing crucial financial services from banks that typically reserve them for the privileged segment. With its payroll solution and other products, NiYO is trying to drive financial inclusion in the country, it said.
The startup also offers a global travel card with no mark-up fee. More than 50,000 users have already signed up for the travel card — and NiYO intends to scale that figure to 500,000 by April next year. In an interview with TechCrunch, Vinay Bagri, co-founder and CEO of NiYO, said the startup is exploring bringing the travel card to other markets — though he did not share any names.
He said the startup will also use the fresh capital to build new product offerings and in expansion of its distribution and marketing efforts. It also wants to grow its customer base from about 1 million currently to 5 million in the next three years. Bagri said NiYO is looking to acquire other startups that are a good fit for its vision.
Neo banks are increasingly becoming popular across the globe as traditional banks show little interest in addressing the needs of niche customer bases. Tide and N26 are showing remarkable growth in European markets, while Azlo in the U.S. and Tyro Payments and Volt Bank in Australia are also among the top players.
In developing regions such as India, too, this tried and tested idea is increasingly being replicated. Open, another Bangalore-based neo-bank, helps businesses automate their finances. It raised $30 million last month.
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App revenue tops $39 billion in first half of 2019, up 15% from first half of last year
App store spending is continuing to grow, although not as quickly as in years past. According to a new report from Sensor Tower, the iOS App Store and Google Play combined brought in $39.7 billion in worldwide app revenue in the first half of 2019 — that’s up 15.4% over the $34.4 billion seen during the first half of last year. However, at that time, the $34.4 billion was a 27.8% increase from 2017’s numbers, then a combined $26.9 billion across both stores.
Apple’s App Store continues to massively outpace Google Play on consumer spending, the report also found.
In the first half of 2019, global consumers spent $25.5 billion on the iOS App Store, up 13.2% year-over-year from the $22.6 billion spent in the first half of 2018. Last year, the growth in consumer spending was 26.8%, for comparison’s sake.
Still, Apple’s estimated $25.5 billion in the first half of 2019 is 80% higher than Google Play’s estimated gross revenue of $14.2 billion — the latter a 19.6% increase from the first half of 2018.
The major factor in the slowing growth is iOS in China, which contributed to the slowdown in total growth. However, Sensor Tower expects to see China returning to positive growth over the next 12 months, we’re told.
To a smaller extent, the downturn could be attributed to changes with one of the top-earning apps across both app stores: Netflix.
Last year, Netflix dropped in-app subscription sign-ups for Android users. Then, at the end of December 2018, it did so for iOS users, too. That doesn’t immediately drop its revenue to zero, of course — it will continue to generate revenue from existing subscribers. But the number will decline, especially as Netflix expands globally without an in-app purchase option, and as lapsed subscribers return to renew online with Netflix directly.
In the first half of 2019, Netflix was the second highest earning non-game app with consumer spending of $339 million, Sensor Tower estimates, down from $459 million in the first half of 2018. (We should point out the firm bases its estimates on a 70/30 split between Netflix and Apple’s App Store that drops to 85/15 after the first year. To account for the mix of old and new subscribers, Sensor Tower factors in a 25% cut. But Daring Fireball’s John Gruber claims Netflix had a special relationship with Apple where it had an 85/15 cut from year one.)
In any event, Netflix’s contribution to the app stores’ revenue is on the decline.
In the first half of last year, Netflix had been the No. 1 non-game app for revenue. This year, that spot went to Tinder, which pulled in an estimated $497 million across the iOS App Store and Google Play, combined. That’s up 32% over the first half of 2018.
But Tinder’s dominance could be a trend that doesn’t last.
According to recent data from eMarketer, dating app audiences have been growing slower than expected, causing the analyst firm to revise its user estimates downward. It now expects that 25.1 million U.S. adults will use a dating app monthly this year, down from its previous forecast of 25.4 million. It also expects that only 21% of U.S. single adults will use a dating app at all in 2019, and that will only grow to 23% by 2023.
That means Tinder’s time at the top could be overrun by newcomers in later months, especially as new streaming services get off the ground (assuming they offer in-app subscriptions); if TikTok starts taking monetization seriously; or if any other large apps from China find global audiences outside of China’s third-party app stores.
For example, Tencent Video grossed $278 million globally in the first half of 2019, outside of the third-party Chinese Android app stores. That made it the third-largest non-game app by revenue. And Chinese video platform iQIYI and YouTube were the No. 4 and No. 5 top-grossing apps, respectively.
Meanwhile, iOS app installs actually declined in the first half of the year, following the first quarter that saw a decline in downloads, Q1 2019, attributed to the downturn in China.
The App Store in the first half of 2019 accounted for 14.8 billion of the total 56.7 billion app installs.
Google Play installs in the first half of the year grew 16.4% to 41.9 billion, or about 2.8 times greater than the iOS volume.
The most downloaded apps in the first half of 2019 were the same as before: WhatsApp, Messenger and Facebook led the top charts. But TikTok inched ahead of Instagram for the No. 4 spot, and it saw its installs grow around 28% to nearly 344 million worldwide.
In terms of mobile gaming specifically, spending was up 11.3% year-over-year in the first half of 2019, reaching $29.6 billion across the iOS App Store and Google Play. Thanks to the fallout of the game licensing freeze in China, App Store revenue growth for games was at $17.6 billion, or 7.8% year-over-year growth. Google Play game spending grew by 16.8% to $12 billion.
The top-grossing games, in order, were Tencent’s Honor of Kings, Fate/Grand Order, Monster Strike, Candy Crush Saga and PUBG Mobile.
Meanwhile, the most downloaded games were Color Bump 3D, Garena Free Fire and PUBG Mobile.
Image credits: Sensor Tower
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Northzone’s Paul Murphy goes deep on the next era of gaming
As the gaming market continues to boom, billions of dollars are being invested in new games and new streaming platforms vying to own a piece of the action. Most of the value is accruing to the large incumbents in a space, however, and the entrance of Google and other big tech companies makes it difficult to identify where there are compelling opportunities for entrepreneurs to build new empires.
TechCrunch media analyst Eric Peckham recently sat down with Paul Murphy, Partner at European venture firm Northzone, to discuss Paul’s view of the market and where he is focusing his dollars. Below is the transcript of the conversation (edited for length and clarity):
Eric Peckham: You co-founded the hit mobile game Dots before moving to London and joining Northzone last year. Are you still bullish on investment opportunities in mobile gaming or do you think the market has changed?
Paul Murphy: I’m bullish on mobile gaming–the market is bigger than it has ever been. There’s a whole generation of people that have been trained to play games on mobile phones. So those are things that are very positive.
The challenge is you don’t really have a rising tide moment anymore. The winners have won. And so it’s very, very difficult for someone to enter with new content and build a business that’s as big as Supercell or King, regardless of how good their content is. So while the prize for winning in mobile gaming content big, the likelihood is smaller.
Where I’m spending most of my time is not on content, it’s on components within mobile gaming. We’re looking at infrastructure: different platforms that enable mobile gaming, like Bunch which we invested in.
Their product allows you to do live video and audio on top of mobile games. So we don’t have to take any content risk. We’re betting that this great product will fit into a large inventory ecosystem.
Peckham: New mobile game studios that are launching all seem to fall under the sphere of influence of these bigger companies. They get a strategic investment from Supercell or another company. To your point, it’s tough for a small startup to compete entirely on its own.
Murphy: It’s possible in mobile gaming still but it’s really, really hard now. At the same time, what you’ve seen is the odds of winning are lower. It is hard to reach the same scale when it costs you $5.00 to acquire a user today, whereas when Candy Crush launched, it was $0.05 per user. So it’s almost impossible to achieve King-like scale today.
Therefore, you’re looking at similar content risk with reduced upside, which makes that equation less attractive for venture capital. But it might be perfectly fine for an established company because they don’t need to do the marketing, they have the audience already.
The big gaming companies all struggle with the challenge of how to create the next hit IP. They have this machine that can bring any great game to market efficiently, with a large audience they can cross promote from and capital they can invest to build a big brand quickly. For them, the biggest challenge is getting the best content.
So it’s natural to me that the pendulum has swung towards strategic investors in mobile gaming content. Epic has a fund that they set up with Improbable, Supercell is making direct investments, Tencent has been making investments for years. Even from a content perspective, you’re probably going to see Apple, Google, and Amazon making more content investments in mobile gaming.
Image via Getty Images / aurielaki
Peckham: Does this same market dynamic apply to PC games and console games? Do you see a certain area within gaming where there’s still opportunity for independent startups to create the game itself and find success at a venture scale?
Murphy: The reason we made our investment in Klang Games, which is building an MMO called Seed that people will primarily play through PC, is that while there is content risk–you’re never going to get rid of the possibility that the IP doesn’t fly–if it works, it will be massive…an Earth-shattering level of success. If their vision comes to life, it will be very, very big.
So that one has all the risks that you’d have in any other game studio but the upside is exponentially larger, so the bet makes sense to us. And it so happens that it’s going to be on PC first, where there’s certainly a lot of competition but it’s not as saturated and the monetization methods are healthier than in mobile gaming. In PC, you don’t have to do free-to-play tactics that interfere with the gameplay.
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China to lose top spot to US in 2019 gaming market
China is losing its global lead in games. By the end of 2019, the U.S. will replace China as the world’s largest gaming market, with an estimated revenue of $36.9 billion, says a new report from research firm Newzoo.
This will mark the first time since 2015 that the U.S. will top the global gaming market, thanks to healthy domestic growth in consoles. Globally, Xbox, PlayStation, Nintendo and other console games are on track to rise 13.4% in revenue this year. Driving the growth is the continued shift toward the games-as-a-service model, Newzoo points out, on top of a solid installed base across the current console generation and spending from new model releases.
China, on the other hand, suffered from a nine-month freeze on game licenses last year that significantly shrank the stream of new titles. Though applications have resumed, industry experts warn of a slower and stricter approval process that will continue to put the squeeze on new titles. Time limits imposed on underage players will also hurt earnings in the sector.
As a result of China’s slowdown, Asia-Pacific is no longer the fastest-growing region. Taking the crown is Latin America, which is enjoying a 10.4% compound annual growth.
Despite China’s licensing blackout, Tencent remained as the largest publicly listed gaming firm in 2018, pocketing $19.73 billion in revenue. Growth slowed to 9% compared to 51% from 2016 to 2017 at Tencent’s gaming division, but the Shenzhen-based company is back on track with new blockbuster Game for Peace (和平精英), a regulator-friendly version of PlayerUnknown’s Battleground, ready to monetize.
Trailing behind Tencent in the global ranking is Sony, Microsoft, Apple and Activision Blizzard.
Other key trends of the year:
Rise of instant games: Mini games played inside WeChat without installing another app are becoming mainstream in China. These games, which tend to have strong social elements and are easy to play, have attracted followers including Douyin (TikTok’s Chinese version) to create with their own offerings.
Facebook’s Instant Games have also come a long way since opening to outside developers in 2018. The platform now sees more than 30 billion game sessions played across over 7,000 titles. WeChat doesn’t use the same metrics, but for some context, the Chinese company boasted 400 million monthly players on mini games as of January.
Mobile momentum carries on: Mobile games will continue to outpace growth on PC and console in the coming years. As expected, emerging markets that are mobile-first and mobile-only will drive most of the boom in mobile gaming, which is on course to account for almost half (49%) of the entire sector by 2022. Part of the growth is driven by improved hardware and internet infrastructure, as well as a growing number of cross-platform titles.
Games in the cloud are here: It was a distant dream just a few years ago — being able to play some of the most demanding titles regardless of the hardware one owns. But the technology is closer than ever to coming true with faster internet speed and the imminent rollout of 5G networks. A few giants have already showcased their cloud gaming services over the last few months, with the likes of Google’s Stadia, Microsoft’s xCloud and Tencent’s Start slated to test the market.
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Eyeing an entry into China, Roblox enters strategic partnership with Tencent
Kids gaming platform Roblox has its sights set on China with today’s news that it has entered into a strategic relationship with Chinese tech giant Tencent. The companies announced a strategic partnership that will initially focus on education — specifically, coding fundamentals, game design, digital citizenship and entrepreneurial skills.
The joint venture — still unnamed — will be based in Shenzhen, Roblox says. And its eventual goal is to bring Roblox to China. This is something Roblox has been steadily working toward ahead of today, most recently by adding support for Chinese languages and making its coding curriculum available for free in Chinese.
The first initiative from the new JV will be a scholarship fund that sponsors 15 young developers, who will fly to the U.S. to attend a week-long creator camp at Stanford University. The camp, taught by iD Tech, will teach the students game design, including how to create 3D worlds, along with programming fundamentals using Roblox’s developer tools and Lua code.
Roblox and Tencent, together with the China Association for Educational Technology (CAET), are calling for applications from creators ages 10 through 15. Teachers will be encouraged to nominate their students, who can apply online on Roblox’s website. The submissions close on June 14, and scholarship recipients will be notified on June 28.
The first camp will run the week of July 23, and a second session will run the week of August 18. During camp, students will work, eat and stay at Stanford.
“I’m extremely excited to partner with Roblox,” said Steven Ma, senior vice president of Tencent, in a statement. “We believe technological advancement will help Chinese students learn by fueling their creativity and imagination. Our partnership with Roblox provides an engaging way to reach children of all ages across China to develop skills like coding, design, and entrepreneurship.”
“Tencent is the perfect partner for Roblox in China,” added Roblox founder and CEO Dave Baszucki. “They have a deep understanding of the Chinese market and share our belief of the power of digital creation and our vision to bring the world together through play.”
The multi-year JV will continue to invest in educational initiatives, including local coding camps, training programs for instructors to build custom courses and more.
Unlike other gaming companies, Roblox has to do more than just finding a way into China with the help of a local partner — it also has to create an active community of game creators in the region. That’s because Roblox is a gaming platform, not a game maker itself. Instead, third-party creators build their own games on Roblox for others to play.
Roblox gets a share of the revenue the games make through sales of virtual goods.
In 2017, Roblox said it paid out $30 million to its creator community, and noted that number would more than double in 2018. In April, Roblox noted that game players and creators now spend more than a billion hours per month on its platform. Now valued at more than $2.5 billion, Roblox claims more than 90 million monthly active users — a number that could dramatically increase if Roblox launched in China.
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Lime’s founding CEO steps down as his co-founder takes control
In an all-hands meeting this afternoon, the scooter and bike-sharing phenom Lime announced co-founder and chief executive officer Toby Sun would transition out of the C-suite to focus on company culture and R&D. Brad Bao, a Lime co-founder and long-time Tencent executive, will assume chief responsibilities, Lime confirmed to TechCrunch.
“Lime has experienced unprecedented growth in the global marketplace under the joint leadership of our co-founders Brad Bao and Toby Sun,” the company said in a statement provided to TechCrunch. “Fortunately, Lime’s structure allows for our executive leadership to be multipurpose and we are making a few changes to our team today to seize the opportunity ahead of us.”
Sun and Bao launched Lime together in late 2016. The San Mateo-based company had near-immediate success, attracting hundreds of millions in venture capital funding and reaching a valuation of more than $1 billion in only a year and a half’s time. Today, the company is valued at $2.4 billion and is expected to hit the fundraising circuit soon.
In addition to today’s CEO shake-up, Lime’s chief operating officer and former GV partner Joe Kraus has been promoted to the role of president. Kraus joined Lime full-time late last year after more than a decade at the venture capital arm of Alphabet.
Meet @tobysun and @Bradbao, our founders.#UnlockLife
Full Film: https://t.co/FyLLe86Ywt pic.twitter.com/0ndiBCTOIT— Lime (@limebike) May 23, 2019
Bao, given his Tencent tenure, seems like a natural choice to lead Lime into a more mature phase of business. Sun, a former investment director at Fosun Kinzon, has less operational experience than his counterpart, who was most recently the vice president of the Chinese conglomerate’s gaming decision.
News of Sun’s demotion comes hot off the heels of a fresh new marketing campaign, featured above, in which the Lime co-founders describe the scooter-sharing startup’s origin story and grand ambitions. The company, backed by Bain Capital Ventures, Andreessen Horowitz, Fidelity Ventures, GV, IVP and a slew of other top-notch investors, is active in more than 100 cities in the U.S. and 27 cities internationally. As of June, riders had taken more than 50 million trips on one of Lime’s vehicles.
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