Turning to China – The Conglomeratization of US Internet Companies
There has been a ton of coverage on the Facebook/WhatsApp deal. I have read only a small portion of it, but I would classify much of the reaction as stunned silence. It is pretty clear that there is no clear consensus as to why Facebook paid so much – so there has been a lot of analysis (especially from Street sell-side analysts) trying to piece together some grand strategy. Some of that makes sense, but for long-horizon thinking, you are still best off going to Benedict Evans.
However, one thing did stand out for me. In the US, we tend to think of the Internet companies as very siloed. Google is for search. Zynga for games. Facebook for social networking. LinkedIn for work social networking. Twitter for news. So when we see a company like Facebook going into messaging, it feels like the lines are getting blurred. We saw a lot of similar head scratching when Google launched Google Plus.
But when it comes down to it, there are no hard and fast rules here. In fact, we operate in the opposite, a place where the rules are pretty much made up on the fly. There is no reason why a social networking company cannot have messaging. Or a search engine cannot have travel data. Or a microblog cannot have a video service. When it comes right down to it, these companies are all in the same business of grabbing our attention and somehow monetizing it.
If you doubt this, look at China. The big Internet companies there all have a mix of businesses, but they all tend to have multiple business arms. The underlying services look familiar to us but the ways in which they monetize do are often less familiar.For instance, China’s biggest messaging service – Tencent’s WeChat – makes money through sales of virtual goods and as lead generator for Tencent’s other apps (e.g. gaming). Advertising, e-commerce, search all monetize in different ways and at different reates there.
In some ways, I think China’s Internet market is much more advanced than that of the US and Europe. The Internet companies there emerged a bit later than they did in the US. So they were able to learn from past practices. They also operate in a ruthlessly competitive market. Unconstrained by “how things have always been done” (always meaning back to 1999), they have pursued every opportunity they can.
As a result, China’s big Internet companies are already conglomerates with social, messaging, gaming and commerce services. These companies tend to mix and match in ways different than what we see in the US. And I imagine that companies here will start to blur things a lot more and begin to resemble the sprawling conglomerates there. Capture traffic anyway you can.