innovation works overview (us press)

8/8/2019 Innovation Works Overview (US Press)

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Dr. Kai-Fu LeeFounder / CEOInnovation Works

September 2010

InnovationWorksCapturing High-Growth TMT Opportunities in China


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Chinese Internet: lucrative space reserved forlocals!

Too short-term profit focused;

Local team not empowered;

Insufficient attention to local market needs:

Global product mentality;

No willingness to tailor for China.

Alibaba

Tencent

Baidu

US $100 Billion

+

Yahoo: entry in 1999, 3721 acquisition in 2003 (40% market share), now 0.5% share

eBay: entry in 2003, Eachnet acquisition (nearly 100% market share), sold


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How is the Chinese Internet Different?

1. Government Regulations

10 sec. spent on result page

30-60 sec. spent on result page

2. Usage Differences(Chart below: more entertainment)

3. User Demographics Differences(average age: U.S. 42 / China 25

years old)4. Society DifferencesGreater reliance on the Internet forinformation

Users are more exploring in nature

Users like densely populated information


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How is the Chinese Internet different?

Internet Caf usage > 30%

Entertainment centric and content-heavy

Music is nearly all unlicensed

Video is heavily (but not richly) monetized

P2P is extremely popular: ads + bundle

revenue SNS: from copycat to localized

Blogging rate is much higher than US

Mobile will be the explosive growth-catalyst

E-commerce is ready to shift from C2C toB2C

Gaming : RPG flat, but casual/socialgrowing

Cloud computing will create a software

industryInnovation Works Focus


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Mobile + E-Commerce: catalyst for the thirdwave

Sina $2.2B

Sohu $1.9B

NetEase $4.5B

Tencent $38B

Baidu $25B

Shanda $3B

Giant $1.8B

Perfect World $1.7B

Second Wave Third Wave Mature MarketFirst Wave

MOBILE INTERNET

E-COMMERCE

ONLINE GAMING (casual, mobile, social)

CLOUD COMPUTING

Major Opportunities
http://www.163.com/http://www.163.com/


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E-commerce emergence in China

Data Source: iResearch, IAB & emarketer

E-commerce development

Payment has been solved via escrow,COD

Logistics problems also solved

Youth becoming avid online spenders

Taobao = 50% of packages shipped

C2C is currently nearly 90% of e-commerce

B2C rapidly growing, gaining trust

E-commerce Accelerates

E-commerce makes advertisingmeasurable & targetable

E-commerce makes advertisingmore valuable

In 2009, China E-Commerce Market was US$36 billion (grew 107%!)


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China e-Commerce Analysis & Opportunities

Productsearch, yelp Microblog &communities B2BB2C Bank, carrier,escrow CustomerService

SaaS, cloud

User

Pre-purchasesearch

1 Decisioninfluence

2 Shopping3 Payment4 Logistics& Service

5

Platform6 Value proposition needs to be clearAmazon: 1-6 360 buy: 3, 4, 5Dianping: 1, 2 Taobao: 3, 4, 6

1

2

3

4

5


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Mobile Internet Opportunities

Carriers are betting on Mobile Internet due to ARPU pressure andcompetition

Needs devices, bandwidth, applications to create a virtuous cycle Challenges:

Smart phones are too expensive (US$600 1000) 3G Bandwidth is still too expensive Yet users are younger (83% of Mobile Internet users are 29 or under) and

not rich


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Mobile Internet User Segmentation

83% of the users are younger than 30

2000 RMB is important price barrier

Demographics of 800M potential users

Hi-end: Whitecollar

Aspiring youngwhite collar,

3-Low Users

(1) High-end users are a small minority(2) Must focus on aspiring young users

before 3-low users(3) Aspiring Young users are existing Internet

users(4) Young users require lower prices

Observations


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What do early-adopter young users want?

Top 10 Desired Apps

Smart Dialer

IM (QQ, MSN)

Localized SMS

Music Player

Games

E-book Reader

Camera & Photo

News & Micro-blogging

Video

SNS (Renren, Kaixin)

Top 5 Android Apps

Web Search

Browser

Email

Maps

Youtube


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Mobile Ecosystem = PC horizontal integration

$5000

$1000

5000

1000


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Beyond horizontal integration: Shanzhai


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Strategic Projections for Mobile Internet

Basic Tools

Browser,security, photos,

Entertainment

IM,SNSmusicgames

video

AdvancedApps

E-Commerce,advertising,

LBS,

search,email

1

2

3

4

5

Chinese Mobile Internet will evolve the same way as the Chinese Internet


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China has no software industry today due to piracy. Cloud Computing will create opportunities for a cloud-generation software industry:

Software installation and upgrading shifting from the user to the cloud

Business model shifting from expensive upgrades to ads-sponsored

IT management shifting from end-user to cloud-services

Gaming is now a $20 billion industry thanks to Cloud Computing (from $10 million in 1998)

Cloud Computing Opportunities

Chinese engineers are plentiful, talented and lower-cost.

Find global opportunities (e.g. iPhone & Android applications) that can leverage this.

Chinas top engineering talent can tackle global opportunities

Cloud Computing may create a new software / IT industry in China

Future opportunity: cloud infrastructure

Chinese websites are not sophisticated to appreciate elastic servicesyet

But as they mature, opportunities will be emerge, since no Amazon/

Google

1

2

3


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Top 10 Chinese Internet Companies6 of 10 get greatest revenue from gaming
http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/http://www.163.com/


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Online gaming opportunities

MMORPG space is mature & crowded.

Domestic SNS games are dominated by platforms.

Younger users are difficult to monetize.

But new opportunities are emerging:

Platformfor Social / Web games (to reduce production/localization cost)

Mobile asynchronous games

Overseas market (need to learn to partner, and avoid giants, e.g.,Zynga)

Domestic market (seek emerging growth opportunities, e.g., mobile)


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VCs prefer for the low hanging fruit, i.e. laterstage

Entrepreneurs lack experience and needmentoring

Lack of an mature Angel Investorpresence.

Difficulty in recruiting because engineerpreference

Image of Venture Capitalas cash provider only

Deal sourcing and closing is still guanxi-based

Legal issues that are challenging and alwayschanging

Early stage environment challenges

Angel VC

?

U.S.

China

Incubation

EarlySta

ge

InvestorsMarket

Entrepre-

neurship

Innovation

Works

. solved by IW


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IW Platform: Process to create a new company

Google 20% model +Idealab model + Localizationfor China

Critically select the best ideas,entrepreneurs, and engineers,and combine them optimallyinto start-up dream team.Idea Selection

InnovationWorks


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IW Platform: Attracting Top Engineers

Resumes in 1st Day Resumes in 1st Day Resumes in 1st Day

~1000 ~3000 ~7000

Now 100,000 resumes150 engineers hired Engineers from:

World Programming Champion Googles Programming Contest #1 in China

Baidu, Tencent, Microsoft, IBM,Google, Motorola, Red Hat, Nokia, Sony

Top Graduates:

2009: 27 of 30 from the Top 5 schools in China

Hiring 150 in 2010!

Top Industry-Hire Engineers from:

HP, Google, IBM, Microsoft, Nokia, Sony-Erickson, Red Hat

Baidu, Tencent, Sohu, Sina, Alibaba, Rising


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Junyu WangCEO, WandoujiaWas: PM,

Google ChinaFan JiangFounder, UmengWas: Engineer,

Google ChinaJinhua MiFounder, PhotoWonderWas: ExtremeBlue, IBM

IW Platform: Attracting Top Entrepreneurs

Fei ZhaoCo-FounderWas: Engineering Director,RenrenHe Huang

Co-FounderWas: Senior PM, TencentLei ZhangCEO, TapasWas: GM,Baidu MobileMily You

President, TapasWas: PM Director,Tencent Mobile

Tim BaoFounderWas: PM, TencentRobbie JiangFounderWas: Founder, Booven

Yuhong XiongFounder

Was: Research Director,HP ChinaBinsen TangCEO, Elex PlatformWas: CEO, Elex Tech.Hongfei TianCo-Founder

Was: Senior Engineer, OracleUSAQiyuan LiCo-FounderWas: General Mgr, Tianji Net

XXXWas: Founder, a top PC s/w in China

YYYWas: Founder, a top website inChina


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IW Platform: Senior Team of Mentors &

Kai-Fu LeeChairman/CEOWas: President,

Google ChinaHua WangManaging PartnerWas: BD DirectorGoogle China

Ye WangDirector, PMWas: Asst to Pres., GoogleZhaohui WangPR/GR ManagerWas: Editor, China Campus

Chris Evdemon

GM, Incubation PgmWas: Partner, Eastern BellVCMichael ZhangInvestment ManagerWas: Asst. Managing Editor

Global Entrepreneur

Benjamin QiuLegal CounselWas: Associate, Lovells LLPErik HuangInvestment ManagerWas: Chief Business Editor,SohuJohn WooDirector, UIWas: UI Manager,

Google ChinaXiuping LiuFinance ControllerWas: Finance Controller, OgilvyChristina LeeHR DirectorWas: HR Director, Ogilvy

Limin ZhouEIRWas: Chief Architect,Baidu

Ryan XuBD DirectorWas: VP, Tsinghua Tongfang

Jin CuiMarketing DirectorWas: PR Manager, GoogleChina


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Entrepreneur-In-Residence

(EIR)

Innovation Works = IW + IWDF

Jump StartProgram

(JSP) Acceleration Program(AP)

EIR JSP AP Angel Funding Series A

Individualentrepreneur

First-timefounders

Experienced product team&founders

Multi-functional team, moving tomature product & revenue

Full executive team

Works in IW tofind project

Selected from

project

Founder-initiated project

usually w/prototype, (could

Full business plan approved by

independent IWDF Investment

Led by external,

3rd party VC;-

6 months 3 months 6 months ~9 months > 1 year

~US$15K ~US $150K ~$750K < $2.5M

~5 / year ~40/ year ~15 / year ~7 / year ~5 / year

Angel Funding Series A Funding

IW (Incubator) IWDF (Fund)


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What Innovation Works is funding

Music (1)

Social (4)

PC client software (2)

Talked to over 500 start-ups

Now funding 12 companies

Mobile (9)

E-Commerce (3)

Advertising (1)

Gaming (2)

Developer tools (2)


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#1. Tapas: Android-based Mobile Phone OperatingSystem

3. Tapas Gen-Y Apps China-specific smart dialer China-specific SMS features Music client with lyric sync Book reader Games IM and SNS with top China sites Smart camera + photo editing Auto sync with SNS Cloud back-up

1. Gen-Y User Experience

Fun, visually striking, fast2. Replaces Google Mobile

Apps

4. Optimized for low-end

Product Business Strate1. License to Phone Manufacturers

Partner with ODMs to provide complete solutions OEMs 3+ OEMs this year, many more next year, leading quickly to >~1M millions units in one year

2. Build turnkey solutions with many revenue opportunities

Extend to more OEMs, and partner with semiconductor companies and shanzhai IDHs


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Market Opportunity

Value Proposition

1.Easy-to-use UI, yet powerful PIM & sync tool

Total Users

#2. WonderPod: iTunes+ for All Smart Phones

3. Users #1 need is manage phone contacts

1.Android lacks an iTunes-like PC companion

4. Become distribution channel for mobile content

2. Smart download (video, music, apps, ebook)

2. Expensive 3G makes getting mobile content (apps,video, music, ebook) difficult

3. Support all android phones & other platforms

"Benjamin Qiu",


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#3.Umeng: Mobile Analytics

Mobile app developers in China ~30% of developers are in China, some are moving tomobile

Mobile app market in China Only about 2000 apps developed for China

To accelerate growth in China Developers need tools for dev/monetization, but US tools dontwork

Product & Service

Market Opportunity

Data Analytics

Tool User trends / behavior

analytics Rich, real-time

dashboard Extensive tool suite Used by 100+ apps Reach million end users

Reports about users &overall market

Based on data from 1M+phones & growing

Mobile Metrics

Report

Developers Needs for building great apps

Understandoverall market Build betterapplicationUnderstandown users Make money

#4 Ph t W d F Ph t A f


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#4. PhotoWonder: Fun Photo App forGeneration Y

Uni ue Product Tailored for Gen Y Girls

3. Unique beautification that can enlarge eyes, slim face, whiten face, and remove acne

1. Designed for mobile-centric photo workflow: capture, beautify, upload to local Facebook

2. Easy-to-use photo-editing + libraries of Photo Booth Sticker Machine decorations (jewelry,

4. Released for simplified & traditional Chinese, Korean, Japanese, and English

Before AfterDecorationsSNSUpload

#5 Ascending Clo d Global Social Game


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#5. Ascending Cloud Global Social GamePlatform

Market Opportunity

3. Global publishing complex and costly; leverage

1. Many countries have strong demand for more

2. Smaller/developing countries growing fastest

Access Payment AnalyticsAd Network Frontend

IDEBackend

IDEHosting

GameStudio

GameStudio

GameStudio

GameStudio

GameStudio

GameStudio

GameStudio

Value Proposition

1. Technologies that can lower cost of multi-country game development & publishing.

2. Leverage IW Jump Start program.

3. Leverage proven team/CEO that has built the


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Thank you!

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