Venture Bytes #32 – All Competition is Local

Posted February 1, 2017

All Competition is Local?

With a billion daily users and a presence in virtually every country, Facebook is a juggernaut bar none. Snap has been marketing itself as the “next Facebook” in its pre-IPO meetings with investors. Uber wants to be a global juggernaut in on-demand car service. Pinterest wants to dominate its space. And so it goes with the other consumer-facing technology companies based in the United States. The idea of a US-based B2C company becoming a global juggernaut was a given for a long time. But times are changing. Local competitors in international markets are asserting themselves.

Let’s start with Uber. This pioneer of on-demand car hailing service started with the promise of becoming the next Facebook in terms of a global presence and popularity. With investors excited about the potential for global expansion into massive emerging markets like China and India, Uber went all-in, investing heavily in its business, determined to dominate the incumbent local competitors. At one point, Uber was investing over $1 billion a year in China, as it competed head-on with Didi Chuxing, the incumbent leader backed by Baidu and Apple among others, and an estimated 42.1 million active users versus UberChina’s 10.1 million. The competition was overwhelming. Uber threw in the towel and exited the market.

Similarly, in India Uber is battling Ola, a strong incumbent with a presence in 102 cities compared to Uber’s 29, with added perks such as smartphones for drivers. In the Middle East, Uber is facing competition from rivals like Careem, who recently raised $350 million at a $1 billion valuation as the first tranche of a larger $500 million round. The story is similar in Africa, Latin America and other developing countries. This trend of fierce competition from local rivals extends to other verticals. Snap has been marketing itself as the “next Facebook” in its pre-IPO meetings with investors, yet it has failed to reach global popularity as clones like Snow in South Korea are gaining popularity. These clones offer localized features such as cultural-specific filters and emojis. Snow has been gaining ground in the highly-coveted Chinese market as well, and with loose patent laws around applications and software, there is nothing Snap can do.

So is the global competitive dynamic changing – particularly in the consumer-facing technology sector? Pioneering companies such as Snap and Uber drive technology to scale and success in the North American and European markets. While these companies are scaling in their initial markets and gaining mainstream adoption, local competitors are catching on much sooner than in the past and establishing a strong competitive foothold. Whether or not this model becomes the “new normal” needs to be watched closely. Meanwhile investors in private emerging growth companies should factor this changing dynamic into their assessment of the compelling growth opportunities in the international markets.

AI Has Arrived

As major media outlets published their perspective on what’s ahead for tech in 2017, against the backdrop of a warming IPO environment, many identified artificial intelligence (AI) as an area which would see tremendous growth over the course of the year and perhaps see mainstream adoption.

While AI has been in many consumers’ pockets for years already through the likes of Siri and other voice assistants, AI has undergone major advances of late and is penetrating more areas of our lives. Want to send an email to a colleague? Amy Ingram, an intelligent personal assistant developed by New York-based x.ai, might reply to schedule a meeting. Amy’s not a new hire, but rather an AI application. Want to ask Alexa to close the door and order a pizza? Alexa isn’t an au pair, but a hands-free voice-controlled intelligent assistant found on Amazon’s Echo speaker and an increasing number of products. What makes Alexa unique is that its software is open, allowing developers to build in compatibility for a variety of new functions and skills, similar to apps for your iPhone.

From Spotify to Uber, Pandora, Nest, Domino’s Pizza, and just about any other app you can think of, Alexa is compatible and can accomplish just about any request you can throw at it – a far cry from Siri’s initial debut in October 2011. At CES, artificial intelligence permeated nearly every segment of technology, from cars to DirecTV. On the enterprise front, IBM is betting its future on AI, leveraging the power of its Watson platform.

From the funding angle, venture capitalists are starting AI dedicated funds – even Microsoft started its own venture fund dedicated strictly to AI. In 2016, AI companies raised nearly $5 billion in investment – a record for the space – and more than 40 AI startups were acquired.

AI is not the first major technology to have been hyped with the potential to go mainstream. Stereoscopic 3D is an example of a technology that was previously subject to similar hype and anticipation. The hype however did not translate into strong sales with the rise of LED TVs and Ultra HD. The technology quickly died with both Samsung and LG officially dropping support. VR (Virtual Reality), another technology that has been the subject of much anticipation, is far more likely to meet this fate than AI. VR certainly has its place and its applications, but these are far more limited than the scale and scope at which we see AI touching everyone’s lives every day. AI is here to stay.

With the technology maturing, funds flowing, and the pace of acquisitions accelerating, AI has arrived and is well-positioned to be transformational. It is no longer a moonshot idea, nor is it likely to be relegated to a novelty like stereoscopic 3D was and VR may be. The massive commercial success of the Amazon Echo line of products shows that the market is hungry for AI and that it spans generations.