Figure 1: Which apps were used how often in one internet minute in 2016 (blue = worldwide, red = in China)?

© STM Stieler Technology & Marketing Consulting

Around 20% of the world's population live in the People's Republic of China. Figure 1 shows that internet usage in China is higher than the global average. According to the World Bank and the UN, more than 721 million of the approximately 1.3 billion Chinese had Internet access last year. Between 70 and 90% of them are 'mobile first' users: they skipped the age of the desktop computer when entering the Internet world and are familiar with Internet access primarily through smartphones or tablets.

Even if Internet usage in China is comparatively high, other countries are ahead in terms of the global popularity of apps used on the Internet: predominantly Western or American companies are leading the way here. One example is Amazon: The online mail order company began its global expansion back in 1998 with its move into Germany. Today, it generates 37% of its turnover outside the USA. By comparison, its Chinese counterpart - the trading platform Alibaba - only generates 4%. Another example: Google has been a global phenomenon from the very beginning. The search engine service has many years of experience with intercultural teams and the coordination of development centers on different continents. Other companies such as Facebook have followed suit. However, China's internet companies are now increasingly trying to conquer territory in young markets such as Southeast Asia, India and Africa.

Chinese versus Western apps

Looking at the most popular applications on the mobile internet, the following differences emerge between the Chinese internet and its - not always clearly comparable - western counterparts:

• YouTube versus Youku: The Chinese video platform Youku has fewer viewed clips than its Western counterpart YouTube. One reason for this is that the advertisements preceding the Chinese clips often last 40 seconds or longer.
• Facebook versus Renren: Facebook clearly beats its original Chinese copy Renren because Chinese internet users now prefer to post on WeChat.
• Google versus Baidu: Google has more search queries, as its search engine delivers significantly better results in an international context than its Chinese competitor Baidu. However, the latter should not be written off just yet: The company currently has the most reliable voice recognition software and was named the 'second most innovative company in the world after Amazon' by the magazine 'MIT Technology Review' in 2016.
• Spotify versus KuGou: The biggest Chinese rival to the Western music streaming service Spotify is KuGou. It is comparatively small, as the music streaming market in China is particularly fragmented.
• Instagram versus WeChat / Weibo: While Instagram is established as an online service for sharing photos and videos in the western part of the world, its Chinese app counterparts WeChat and Weibo leave little room for vertical apps in China.

Figure 2: The Chinese e-commerce market as a prime example: The Chinese apps Alibaba, Didi Chuxing and WeChat are ahead in a global comparison.

© STM Stieler Technology & Marketing Consulting

• Twitter versus Weibo: Users post more tweets on the Western short message service Twitter than on its Chinese counterpart Weibo. One reason: the 140-character limit on Twitter encourages a higher frequency of use. In comparison: Weibo has been offering its users up to 2000 characters since the beginning of 2016.
• Amazon versus Alibaba: In detail, Amazon and Alibaba operate different business models: While Amazon generates the majority of its revenue from products sold on its platform and through its web services, most of Alibaba's revenue comes from ads and add-on services for sellers on the platform.

In addition to these apps, however, there are also mobile applications from China that are global leaders: In the case of WeChat or the ride-hailing service Didi Chuxing, China is ahead of the rest of the world. Even if many of the technologies on which these apps are based do not originally come from China, the country is developing into a leading market for mobile commerce and the sharing economy. This is due to the sheer size of the market (Alibaba alone bought more servers in 2015 than the whole of Brazil - see Figure 2) and the density in Chinese megacities: There are 160 cities in China, each with more than 1 million inhabitants, 15 of which even have more than 10 million inhabitants.

The two apps in detail

The ride-hailing app Didi Chuxing currently has a market share of almost 90% among Chinese ride-hailing companies. According to its own figures, the company arranged 20 million rides per day across the country in October 2016. Its Western app counterpart Uber only managed 2 million rides per day worldwide in July 2016.

The Chinese app WeChat is often mistakenly compared to the Western instant messaging service Whats-App, but it can do much more(see Fig. 3). For many people in China, urban life without WeChat is almost unimaginable - an effect that is likely to intensify. Many Chinese people are already using WeChat to organize cab rides, book flights, train tickets and hotel rooms, arrange appointments with authorities and order services such as cleaning services, massages, food or flowers. WeChat is also the most convenient way to manage your own finances in China. Online and offline purchases can be paid for conveniently and securely. During Chinese New Year 2016 alone, almost twice as many transactions were processed via the WeChat platform in China than with the online payment service PayPal worldwide in the entire previous year.

Image 3: Mistakenly equated with WhatsApp, WeChat is much more than a messaging app in China. The image shows a screenshot of the WeChat dashboard.

© STM Stieler Technology & Marketing Consulting

The two apps in detail:
The ride-hailing app Didi Chuxing currently has a market share of almost 90% among Chinese ride-hailing companies. According to its own figures, the company arranged 20 million rides per day across the country in October 2016. Its Western app counterpart Uber only managed two million rides per day worldwide in July 2016.

The Chinese app WeChat is often mistakenly compared to the Western instant messaging service WhatsApp, but it can do much more(see Figure 3). For many people in China, urban life without WeChat is almost unimaginable - an effect that is likely to intensify. Many Chinese people already use WeChat to organize cab rides, book flights, train tickets and hotel rooms, arrange appointments with authorities and order services such as cleaning services or massages, food or flowers. WeChat is also the most convenient way to manage your own finances in China. Online and offline purchases can be paid for conveniently and securely. During Chinese New Year 2016 alone, almost twice as many transactions were processed via the WeChat platform as with the Western online payment service PayPal in the entire previous year.

Micro apps as the latest coup

With the introduction of so-called micro apps, Chinese app providers are expanding the functional scope of their apps and making them independent of the respective operating system. This is a step that would see Apple ban every smaller provider from the AppStore. Due to WeChat's dominant position, the Americans have no other choice in this case.

This concentration is not necessarily to the benefit of the customer: At the end of January 2017, for example, the Shanghai city government was forced to introduce price caps because too many cab customers had complained about exorbitant prices. WeChat is also likely to play a central role in the virtual points system that the Chinese government intends to use in future to monitor and evaluate the compliance of its citizens with rules and regulations. The flow of communication will also be heavily censored if necessary. One example: After the death of Nobel Peace Prize winner Liu Xiaobo on July 13, 2017, messages containing his name were automatically deleted. Something similar even happened with pictures of the dissident or links to Twitter or the New York Times.

International takeovers foreseeable

The strong capital base of Chinese investors and their hunger for foreign technology led to some spectacular takeovers of Western internet companies last year. Prominent examples include the acquisition of Skyscanner by the leading Chinese online travel booking platform Ctrip (USD 1.7 billion) and the takeover of AppLovin, the third-largest mobile advertising platform after Google and Facebook, by Chinese investor Orient Honda Capital (USD 1.4 billion). Despite stricter capital controls, this trend is continuing in the current year.

The potential gain - the world's largest domestic market with a growing urban middle class and lax legislation that does not yet exist in some areas - means that investors are taking the highest risks. Recent examples include the restructuring of the internet and technology company 'Leshi Internet Information & Technology' and statements from senior executives of leading Chinese internet companies. This proves that many Chinese companies in this sector must learn to keep their costs under better control if they want to survive in the long term.

Focus on artificial intelligence

Nevertheless, we can expect more impetus from Chinese internet companies in the future when it comes to the trending topic of artificial intelligence. This is suggested by the budgets allocated to this area by Baidu, Alibaba and Tencent alone, as well as the recruitment of top foreign talent by these companies. In addition, Chinese entrepreneurs are explicitly encouraged by the government to develop applications for artificial intelligence in the industrial sector - areas from which the big players in Silicon Valley have so far stayed out. The activities shown in Figure 1 will therefore increase in the coming year.