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What’s Happening
The firms in the “big tech” category have been reasonably stable for the past 5 years or so – Amazon, Apple, Facebook, Microsoft, and Alphabet/Google in the US (also known as the “Frightful Five”), and Baidu, Alibaba, and Tencent in China (the “BAT”). Recently, however, mega-funds and big tech firms have been pouring capital into digital platforms beyond the US and China. The influx of capital is causing rumblings that we may be seeing the rise of the next set of “big tech” players.
These rising players – all headquartered outside the US – are building their own versions of the strategic flywheels demonstrated by the traditional big tech firms. A common pattern might begin with a ubiquitous consumer offering – such as mobile telecom, social app, ride-hailing, food delivery, or payments – generating data for AI-powered insights and personalization, enabling an expanded value proposition within their ecosystem, with the goal of eventually amassing economies of scale.
None of the companies below are small or unknown – in many cases, they are giants within their home country. What all of them have in common are access to sizable data flows, an expansive scope of business, and meaningful progress towards global ambitions beyond their borders. Recent inflows of capital and key strategic alliances are positioning them to have an outsized influence on the world economy – and even potentially challenge today’s tech giants in the future.
Reliance Industries’ Jio Platforms (India)
Perhaps the company generating the most “next up” buzz recently is Jio Platforms, which is controlled by Asia’s richest man Mukesh Ambani under the Reliance Industries umbrella.
Founded in 2016, Indian telecom Reliance Jio Infocomm rapidly became India’s largest mobile telecom operator, with 388M+ subscribers of its aggressively priced, nationwide 4G LTE network (which has plans for 5G). Reliance Jio Infocomm was responsible for bringing wireless data prices in India down to 16 to 19 cents per GB – the cheapest data in the world. In so doing, it spurred the digitization of India – now the 2nd-largest Internet and smartphone market in the world (trailing only China) with fast-growing ecommerce and digital payments sectors.
After a period of network expansion and investment, it underwent a restructuring in late 2019 that involved selling its tower infrastructure to real-estate giant Brookfield for $3.7B and bringing Reliance Jio Infocomm and Reliance Industries’ other digital initiatives into a new Jio Platforms debt-free subsidiary. Parent company Reliance Industries, which was left with the bulk of the debt, has since undertaken a major deleveraging – selling 25.2% of Jio Platforms at a valuation of $57B-$65B (see below) and achieving its goal of paying down its net debt to zero.
From April to mid-July 2020, in a remarkable display of dealmaking, Jio Platforms raised nearly $16B from global investors – Facebook ($5.7B), Silver Lake ($1.3B), Vista Equity Partners ($1.5B), General Atlantic ($870M), KKR ($1.5B), Abu Dhabi-based sovereign fund Mubadala ($1.2B), Abu Dhabi Investment Authority ($750M), TPG ($600M), L Catterton ($250M), Saudi Arabia’s sovereign Public Investment Fund ($1.5B), Intel Capital ($254M) and most recently Qualcomm Ventures ($97M). Google was also recently reported to be in advanced talks for a $4B investment. Analysts are expecting an overseas IPO in the US in 2021 or early 2022 at a valuation north of $100B.
Jio Platforms, despite being only recently created in late 2019, has assets that make it a major regional tech player. In addition to its Reliance Jio Infocomm mobile telecom business, it has an expansive and diverse set of digital applications in one of the fastest-growing large economies in the world (see our Jan 30 2020 brief on the India market battleground). It is also a market where Reliance Industries reportedly has friendly relationships with leading politicians, helping it stay “ahead of the curve” in a regulatory environment that has been shifting rapidly.
The MyJio app and its “mini-app” ecosystem are central to Jio Platforms’ digital proposition. The MyJio app has deep integrations with leading Jio services such as JioCloud cloud storage, JioTV/JioCinema video-streaming, and JioSaavn music-streaming. It is also rolling out payments via the government-backed Unified Payments Interface (UPI) – which enables instant fund transfer between bank accounts – on MyJio.
Jio Platforms’ services don’t stop there – it has tentacles in many of the domains relevant to a rapidly digitizing economy. While these are in varying stages of development, with many Chinese apps recently blocked by the Indian government, Jio consumer services are well-positioned for growth:
  • Mobile phones: JioPhone (4G feature phone; 100M+ new users in the past two years).
  • News: JioNews (news aggregation, digital magazines and e-newspapers).
  • Communication: JioCall (communications over a data network), JioChat (chat, SMS, voice and video calls), Jio Group Talk (multi-party calling), and the just-launched JioMeet (videoconferencing platform).
  • Health: JioHealthHub (telemedicine and personal healthcare hub).
  • Voice assistants: HelloJio (voice assistant in the MyJio app), Video Call Assistant (AI-powered automation of customer support and communications for businesses), and Jio Bot Maker (developer toolkit that lets brands build and deploy an AI assistant in 5 minutes).
  • File-sharing: JioSwitch (secure file transfer and sharing).
  • Connected car: JioMotive (car monitoring and tracking).
  • Consumer loyalty: Jio Prime (membership program with bundled content and services).
Jio Platforms also houses a prior Reliance digital acquisitions such as Embibe (edtech), Tesseract (AR/VR), Netradyne (AI fleet management), Asteria (drones), and Reverie/Haptik (AI for speech and language recognition). Its ambitions extend to building one of the world’s biggest blockchain networksand launching Jio University in 2021.
Reliance has actively sought to capitalize on the intersections among its businesses, such as JioHealthHub and JioMeet for telemedicine. The integration of physical and digital platforms has been particularly prominent in its strategy. For instance, Jio Platforms recently launched a new ecommerce and grocery-delivery platform called JioMart, in partnership with affiliate Reliance Retail (India's largest retail chain). JioMart was rolled across 200 locations, with plans for 1,000+ within a year. It is now working with investor Facebook to integrate JioMart ordering via chatbot into Facebook-owned WhatsApp (which has 400M+ subscribers in India, its largest market).
For order fulfillment, JioMart has been aggressively pursuing partnerships with neighborhood stores known as kiranas (the most common retail presence in India) to extend its delivery reach. Separately, Jio Platforms is building a network of 1M+ micro-entrepreneurs (JioPOS Lite) who can serve as channel partners in their communities (e.g. mobile top-ups).
Lastly, Jio Platforms is growing its relationships with global tech firms and established brands. In addition to its relationship with Facebook, it has a 10-year strategic partnership with Microsoft to launch data centers in India and help small and medium-sized business customers digitize. It also has marketing collaborations with Amazon Prime and Disney/Hotstar.
ByteDance (China)
Founded in 2012, Chinese firm ByteDance is a relative upstart compared to regional tech giants Alibaba (ecommerce), Tencent (social/gaming) and Baidu (search). Unlike the BAT firms, which have been challenged to replicate their local dominance beyond the region despite significant investment, ByteDance has been able to achieve traction overseas. Its short-video platform TikTok has been a breakaway global success (see our Oct 31 2019 brief on TikTok’s rapid rise), which has been spurred even further by the COVID-19 crisis.
ByteDance saw $5.6B in revenue in Q1 2020, up 130%+ year-over-year. It reached profitability in 2019, with $3B+ profit on $17B+ in revenue. Despite TikTok’s success and high user engagement, most of ByteDance’s revenue still comes from digital advertising on its Chinese apps such as Toutiao and Douyin (see below) – it had 6 out of the top 10 apps in the China iOS App Store as of Jan 2020. While TikTok has been growing its advertising revenue, it is still in the “early stages of making money” from advertising, in-app purchases and virtual currency.
ByteDance’s portfolio of apps and services collectively has billions of monthly active users (1.5B as of Jun 2019). It is a prolific app developer, operating a standardized process for building apps and evaluating them every 2 months for further investment or shutdown. While the market might see a “few tens of apps,” this number pales next to the “few hundred” that ByteDance might be developing, with many never making it to market. It often builds two versions of an app – one for the China market and one for international markets. Analysts believe that many of the current China-only products will also eventually make their way to international markets such as the US.
ByteDance’s success originated in consumer offerings such as short-form video and news aggregation, putting it in head-to-head competition with Tencent:
  • Interest-based communities (China): Dongchedi (car information), Banciyuan/BCY (anime community), Pipixia (joke/meme community), and investment in Hupu (sports community).
Not every consumer product has been a success – ByteDance recently shut down news aggregator app TopBuzz (outside China) and Vigo short-video apps (outside China). Snapchat-like Duoshan (inside China), WeChat-like Feiliao/Flipchat, and makeup social network Paofu never gained traction. ByteDance also regularly reorganizes its portfolio, for instance merging its short-video app Huoshan into the more successful Douyin, rebranding its Wikipedia-like Baike to be more closely affiliated with Toutiao, and folding Quora-like Wukong Wenda into Toutiao.
ByteDance is growing both in size and scope, with plans to nearly double staff from 60K+ to 100K this year globally. It is expanding beyond its core consumer app categories into:
  • Enterprise collaboration: ByteDance’s enterprise team, which has 1,700+ staff and growing, is focused on Slack/G Suite-like enterprise collaboration platforms Lark (currently in Japan and Singapore) and Feishu (inside China).
  • Financial services: ByteDance, which has offered lending and insurance via Toutiao since 2017, recently created a separate brand for financial services called Manfen in late 2019. The consumer app offers loans (of up to $28,000), credit cards and insurance in partnership with local banks/insurers. In May 2020, ByteDance also invested in startup Lingxi, which applies AI to financial services (e.g. debt collection, insurance sales). ByteDance has received an insurance broker license and is seeking one for consumer finance. It also bid on one of the 3 wholesale digital bank licenses on offer in Singapore, which would allow it to serve business clients.
  • Ecommerce: ByteDance has a few early forays in ecommerce – Xin Cao (content-driven social commerce in China), Zhi Dian (low-priced factory-to-store ecommerce), and Smartisan's online store (acquired in mid-2019).
  • Marketing & advertising: ByteDance has a growing portfolio of apps to support its advertising business – Juliang Yinqing (platform to help advertisers manage ads), Feiyu CRM (helps advertisers track leads and conversions), Juliang Chuangyi (short-video ad development); and TikTok AdStudio (creative exchange service for overseas users).
  • Hardware: In late 2019, ByteDance rolled out its own smartphone in partnership with Chinese phone maker Smartisan, with pre-installed branded apps and features.
Integration among its services, along with AI and user data, has been central to ByteDance’s success. New apps help drive deeper engagement, while existing capabilities and an installed customer base help new apps gain traction. The personalization algorithms used in TikTok, for instance, that have helped drive popularity and “addictiveness” for users are also used to power recommendation engines in news and ecommerce.
ByteDance frequently runs into regulatory snags, both in China and in its overseas markets. It has had to take down apps multiple times – most recently its enterprise collaboration app Feishu in China on a temporary basis as a penalty for incorporating Facebook and Twitter content. The recent ban on Chinese apps in India has fallen disproportionately on ByteDance, which spent hundreds of millions of dollars to grow its position in India and is now projected to see a loss of up to $6B.
TikTok is also facing scrutiny and a potential ban in the US in response to privacy issues and foreign-surveillance concerns, as well as in the EU, Denmark, Netherlands, Turkey, and Australia. Some corporate IT departments are considering company-wide bans on TikTok, with Wells Fargo recently announcing such a ban and Amazon reportedly instituting such a ban and then reversing it. These issues have spurred new short-video challengers such as Instagram Reels and India-based Chingari and Roposo.
As ByteDance pushes on expansion with an eye towards an IPO, it has been distancing itself from China as a way to assuage regulators and consumers. It brought on a new US leader (Disney’s former head of streaming) as CEO of TikTok and COO of ByteDance, expanded its US-based organization, and launched a Transparency Center in Los Angeles. Data on TikTok US users is stored outside of China in the US and Singapore, and ByteDance has also cut off China-based engineers' access to data on overseas users. It plans to set up a new legal entity in India and, in response to China’s new security laws, has announced TikTok will be exiting Hong Kong.
Gojek (Indonesia) & Grab (Singapore)
Gojek and Grab, often talked about in the same breath, have been engaged in a heated head-to-head battle in Southeast Asia (which has a growing $100B internet economy). Both began in ride-hailing and delivery, expanding to other arenas as they grew their “super-app” ambitions. Gojek was earlier to market than Grab and is positioned in the largest country market in the region (Indonesia), but was slower to expand across Southeast Asia and has raised less money than Grab.
Lately, the pandemic has put a damper on both companies, causing them to conduct layoffs, pull back on non-core businesses, and put greater emphasis on on-demand delivery and financial services. Rumors swirled of a potential merger between the two in Feb/Mar 2020, though they have since died down.
Gojek and Grab continue to raise capital from high-profile backers through their respective giant funding rounds, which both opened in 2018. Gojek has raised $3B+ in its ongoing Series F ($10B valuation), adding $1.2B in Mar 2020 from unnamed investors. It was followed in Jun 2020 by another inflow from Facebook and PayPal into Gojek’s payments arm GoPay (amount unknown); the deal involves a collaboration between Gojek and WhatsApp to help digitize small businesses, and integration enabling customers to pay with GoPay at PayPal’s global network of 25M+ merchants. Grab, in turn, has raised $7B+ in its ongoing Series H ($14B valuation), adding $850M recently from Mitsubishi UFJ (MUFG) Financial Group and others. MUFG plans to start lending to Grab’s users and drivers.
Gojek operates in 207 cities across 5 countries (Indonesia, Singapore, Thailand, Philippines, Vietnam) and reports 170M downloads. The vast majority of cities served (203), along with 80% of its customers, are in Gojek’s home country of Indonesia – which, in addition to being the most populous country in the region, is also one of the fastest-growing markets. Gojek recently kicked off an effort to unify its brand and technology platform across its country markets (it had previously taken a more localized, fragmented approach), as it seeks to grow non-Indonesia users/transactions to 50% of its base. Gojek offers its services (which vary by market) across 6 categories:
  • Food, consumer goods & health: GoFood (food delivery & cloud kitchens), GoMart (grocery delivery), and GoMed (telemedicine, pharmacy delivery, and booking of health visits).
Singapore-based Grab operates in 500+ cities across 8 countries (Singapore, Malaysia, Indonesia, Philippines, Thailand, Vietnam, Myanmar, Cambodia) and reports 187M downloads. Like Gojek, the majority of cities where Grab operates are in Indonesia (followed by Vietnam and Malaysia). In 2018, Grab announced its GrabPlatform” open-platform strategy, which opened up a set of APIs that would allow 3rd-party partner developers to access its technology components such as logistics and payments. Its set of offerings is similar to Gojek’s:
  • Food, consumer goods and health: GrabFood (food delivery), GrabFresh/GrabMart (grocery delivery), and GrabHealth powered by Good Doctor (telemedicine, pharmacy delivery, and booking of health visits).
  • News & entertainment: Tickets (movie & event tickets). It also previously had a video-streaming service but its partner Hooq shut down in May 2020.
  • Hotel bookings: Hotels (in-app booking) in partnership with Bookings.com and Agoda.
  • On-site services: GrabKios (on-site services at “warungs”/kiosks, such as mobile top-up, money transfer, phone insurance, package shipping, and gold investment).
Gojek and Grab handle massive amounts of data – Gojek, for instance, handles 350M API calls a second and 5 TB of data every day. Grab generates even more – 40 TB of data every day. AI underpins both Gojek and Grab’s operations. In 2019, Gojek partnered with Google Cloud on Feast, an open-source machine-learning platform that allows its engineers to discover and reuse the “features” that power much of its operations. The personalized recommendations across Gojek’s services, for instance, are powered by machine learning. Grab, in turn, uses AI for use cases that include matching a driver to a customer using 50+ different attributes, routing to help drivers maximize jobs on their way home, natural-language processing to provide customer support, and analytics that automate line-of-credit offers to drivers. Grab invested $100M+ in AI in 2019 and wants to train its 2,000 engineers in AI to become an “AI-everywhere” organization.
Rappi (Colombia)
Over the past 5 years, Rappi has become Colombia’s first unicorn and one of the fastest-growing startups among the recent wave of investments in Latin America (see our Oct 22 2019 brief). Rappi began life as a gig-powered grocery delivery app, and quickly expanded into on-demand delivery, payments, advertising and beyond with a vision of becoming the leading “super app” in Latin America. According to one of Rappi’s founders, it can deliver “almost anything” within 30 minutes for one dollar. Engagement is high among active users, who open the app 4.2 times per week on average.
Rappi is well-positioned in a region that is rapidly digitizing and growing in mobile adoption. It has 11M+ monthly active users (25M registered) and 200,000 bike couriers in about 200 cities across 9 countries – Colombia, Mexico, Brazil, Argentina, Chile, Peru, Ecuador, Uruguay and Costa Rica. Rappis’ rapid expansion in geographic footprint and couriers over the past year has been fueled by $1.4B+ in funding, including a notable $1B investment by SoftBank (Apr 2019). It plans to continue to push into more Latin American cities with at least 500K residents.
The startup makes money on the merchant side of the business from order commissions in the 10-15% range – it delivers from nearly 100K businesses across Latin America. (The typical $1 delivery fee and any tip goes to the couriers.) It also sells advertising and marketing services such as new-product sample delivery to CPG (consumer packaged goods) companies.
Rappi has expanded to offer a range of products and services, often in partnership with businesses and vendors, in an effort to keep users in its ecosystem and grow commission-generating transactions:
  • On-demand delivery: Delivery of “almost anything” within 30 minutes, including restaurant takeout, groceries, convenience items, pharmacy prescriptions, packages, documents, cash from an ATM delivered by courier (RappiCash), forgotten keys and other personal items (and reportedly sometimes items of a more dubious nature). Rappi began piloting robot delivery in Colombia earlier this year, in partnership with Kiwibot.
  • Micro-mobility: Scooter rentals (in partnership with Grin).
Data is central to Rappi’s vision – amassing user and transaction data allows it to offer clients such as Nestle and Anheuser-Busch with rare insight into Latin American consumer shopping habits. Its RappiOne self-service marketing platform for brands offers a range of products such as programmatic advertising (Rappi Ads/Click2Rappi), brand performance (Power Shopper), and product sampling campaigns (Sampling), in partnership with vendors (e.g. Adsmovil). In mid-2019, Rappi announced a $20M investment in AI and has been building out a team to address problems such as supply-demand matching, workforce scheduling, and fraud detection.
The startup is not yet profitable despite its early claims that a new market can be profitable in 25 days. It also still does not have any answers as to when it might be profitable, though it is reportedly targeting an IPO in 2021. Its high cash burn is partly driven by sizable discounts and expensive growth initiatives (e.g. building prep kitchens for popular restaurants), in addition to its ongoing expansion.
Rappi has had a volatile 2020 so far. The year began with layoffs of 6% of its workforce (about 300 of its 5,000 staff) reportedly to focus on technology and user experience, soon after investor SoftBank began emphasizing profitability. Jan 2020 also saw allegations the founders had stolen the idea for Rappi from a team of entrepreneurs that had sought advice. Rappi then saw a pickup in orders in early 2020 during the pandemic, reporting a 30% increase in deliveries and later a 15% increase in courier earnings. Apr 2020, however, saw the merger of two rivals on its home turf in Colombia and an unpopular Rappi policy that, along with complaints about working conditions and pay, gave rise to courier protests that continue to today. The Colombian government is also currently investigating Rappi in response to a wave of consumer complaints.
Line with Yahoo! Japan (Japan)
While Line (a Japan-based subsidiary of South Korean search firm Naver) has not been making as many recent headlines, it is the most popular messaging app in Japan, Taiwan and Thailand, and trailing only WhatsApp in Indonesia. It has 165M monthly active users across these 4 markets (about half of its users and 74% of its revenue are in Japan).
While Line has seen moderate growth in Japan, it has struggled to grow in its other markets. It is heavily reliant on advertising revenue and has not been profitable since 2018. In Nov 2019, Line and Yahoo! Japan (a SoftBank affiliate with 50M users and a strong presence in Japan) announced they would merge, in an effort to dominate the Japanese market and fend off Rakuten and US tech giants. The merger effectively brings together Line’s “Life on Line” strategy and Yahoo! Japan’s “Fortress Japan” strategy.
The merger is also an effort to create an Asian powerhouse in AI – “one of the world’s leading artificial intelligence technology companies.” The combined entity plans to tap the capabilities of each firm (e.g. Line Data Labs) and apply AI to online marketing, ecommerce and digital payments. In Mar 2020, Line announced its intent to increase its AI-related headcount to 200 staff by 2021.
The assets of the combined entity give it footing to become a major player in the Asia-Pacific region. In addition to Line’s core messaging app (with video, voice and group calling), the ecosystem of offerings (some available only in certain markets) includes:
  • Payments: Line Pay, which encompasses peer-to-peer payments, mobile point-of-sale, and ecommerce, has been a key priority. It is the leading digital wallet in Japan (37M users) – followed by Yahoo! Japan’s PayPay – with strength in Taiwan and presence in Thailand and Indonesia as well. (Most of these markets have been relatively slow to adopt digital payments but are seeing increasing use.) Line Pay has been working to build relationships that extend its payments ecosystem – such as with Visa (in-app digital Visa cards, Line Pay compatibility at Visa’s 54M merchant locations, and blockchain-based payments), WeChat Pay (integration to enable WeChat users to purchase from Line Pay merchants), and regional alliances to facilitate a more connected payments network.
  • Healthcare: Line Healthcare (a new service providing telemedicine, drug prescriptions and payment, in collaboration with M3 and Mediplat).
What It Means
The lure of the strategic flywheel and “big tech” position
The strategic flywheels demonstrated by the traditional big tech firms have a powerful allure. In a digital world, ubiquitous offerings (e.g. social media, payments) can generate massive stores of data for AI-powered personalization and in doing so, position a firm to deepen customer relationships, offer more value in other arenas, and enjoy both economies of scope and economies of scale.
This might be stating the obvious but big tech firms are shockingly lucrative. Take a moment and guess (if you don’t happen to know) the revenue and operating margins of the current US big tech firms.
Now here are the revenue and operating margins for their last full fiscal year: Google – $162B and 21%; Apple – $260B and 25%; Facebook – $71B and 34%; Amazon – $281B and 5%; Microsoft – $126B and 34%. It’s not surprising that other companies want to be like them and national governments want a piece of the taxable pie. Even in the US, where the competitive landscape is relatively saturated, there are many large companies pursuing their own vertical-specific versions of the big-tech strategic flywheel.
A less welcoming environment for big tech firms
This is, however, a very different environment than the one that fostered the current US big tech firms. We’re now well past the Wild West of the digital age and there are a range of practices once the norm that are becoming less viable, such as: Use of 3rd-party cookies to collect browsing data (see our Jun 24 2020 brief), selling consumer data without consent (see our Dec 30 2019 brief on the California privacy law), disclaiming responsibility for sellers on a 3rd-party marketplace (see our Nov 11 2019 brief on Amazon’s marketplace challenges), buying startups to circumvent future competition, and using dominance in one arena to limit competition in others.
This last item is particularly relevant for startups pursuing a “super app” strategy. Regulators have become increasingly skeptical of the power wielded by big tech firms – and in some cases are trying to put the toothpaste back in the tube (e.g. the FTC considering an injunction against Facebook’s technical integration of WhatsApp and Instagram). As a result, regulators are becoming less inclined to look kindly upon upstarts relying on dominance in one area to attain leadership in other areas – particularly foreign upstarts. Depending on the regulatory environment, a “super app” strategy may not even be possible for some players.
Given the growing antitrust cases against big tech, the term “unfair advantage” – long-used by entrepreneurs and venture capitalists to describe business-model differentiation – is looking a little dated. Earlier in this technological cycle, unfair advantage was often derived from breakthrough innovation and its associated intellectual property. Early startups could “move fast and break things,” in some cases flouting local regulation with impunity.
Now, there’s less greenfield opportunity and it’s harder to carve out a distinctive market position, while at the same time talent and R&D have become more expensive. Massive fines are also being handed down for rule-breaking and corporate protests are increasingly common. Emerging big tech firms will have to thread a fine needle to arrive at a business model that is profitable, scalable and acceptable over the long run within the societies where they operate.
Economic nationalism and the rise of regional big tech firms
Policymakers around the world are reconsidering globalization and seeking to reduce reliance on other countries. Examples abound – for instance, the EU’s Gaia-X alternative to US cloud giants (see our Nov 22 2019 brief) and support for a European payments rival to Visa and Mastercard, China’s massive $1.4T investment in chips and “new infrastructure,” and India’s ban on Chinese apps and pushback against foreign firms as it seeks to be “a self-reliant India.” The US has also taken measures to forestall China’s technological rise, such as putting pressure on Huawei and push for government investment in 5G and chips.
Regulators are favoring local players – such as China’s national tech champions and India’s Reliance Industries – giving them a true “unfair advantage” in their home market. In some cases, this might take the form of scrutinizing foreign investments and bolstering local distressed firms with funding; holding up regulatory approval for foreign products or suspending/banning them altogether; or just laxness with respect to governing market entrants. The net effect is that local players get more time to catch up, even if their technology and user experience are not as strong as competitors.
Digital currencies and payments are a particularly sensitive area for policymakers. WhatsApp Pay, for instance, has struggled to get into India (where it has been waiting for government approval for two years) and was suspended in Brazil by regulators soon after rollout. The Brazilian central bank said the decision was to “preserve an adequate competitive environment”; on a related note, it plans to launch its own PIX payments service later this year. Even in markets that aren’t explicitly favoring homegrown firms, government policy is a wild card – the launch of a UPI-like national payments infrastructure in a market, for instance, could change the game completely.
The sheer size and scope of today’s tech giants makes it unlikely that we’ll see them supplanted on a global scale anytime soon. The short answer is that we won’t see too many more global big tech firms but we are seeing the inevitable rise of regional big tech firms. Global players will continue to partner with these regional big tech firms to establish a presence in large digitizing markets like India, Indonesia and Brazil. Chinese giants Alibaba and Tencent are taking the approach of in-market proxies, with reportedly 11+ e-wallet or payments brand proxies across 6 markets in Southeast Asia (in addition to operating directly in some cases). As the geopolitical landscape shifts, we will see analogous shifts and mega-alliances among global and regional tech firms – the NATOs of the corporate world.
“Big tech” is being reshaped by regional players
In the US, the mental picture we have of tech firms – big, rich companies that produce polished products and lobby governments – is based on the likes of Google, Apple, Facebook and Amazon. Big tech firms in the US are no longer as inclined to “move fast and break things.”
In the intensely competitive markets of China, India, Southeast Asia, and Latin America, however, the picture is very different. Their products are less finished, their brands less integrated, their processes less orderly. ByteDance, for instance, operates in China where the velocity of work is at a breakneck pace. It runs a fast-paced app development engine that produces hundreds of apps, evaluates them frequently, and scraps most of them. Its philosophy of “context, not control” means it can decentralize decision-making and innovation, even while it expands to 100,000+ staff. It is willing to make low-stake bets – even its recommendation algorithms are designed to show every post to 100 people, gather metrics, and gauge whether to show it to more.
The integration of online and offline is a common theme that draws from Alibaba’s New Retail strategy in China. In many of these countries, neighborhood stores are the most common retail presence. (Even in the US, offline retail is still expected to be 86% of overall retail in 2020, despite pandemic-related decline.) Jio Platforms partners with neighborhood kiranas in India to extend JioMart’s delivery reach and is building a network of 1M+ micro-entrepreneur channel partners in local communities. Similarly, Grab operates on-site services (e.g. money transfer, shipping) at neighborhood warungs in Indonesia. Gojek is focused on both sides – helping hundreds of thousands of smaller brick-and-mortar businesses move online, while offering cloud kitchen services offline.
Ultra-fast hyperlocal delivery is another theme of New Retail. Delivery continues to be important for shoppers and their stickiness – in one 2020 consumer survey, the #1 reason (selected by 80% of respondents) that Prime members shop with Amazon is its free two-day shipping, despite all the other benefits. In China, the expectation is delivery within 30 minutes. With Rappi, 30-minute delivery is becoming the norm in swaths of Latin America. Some tech players are pushing the bar even further, with Yandex offering hyperlocal grocery delivery from mini-warehouses via bike within 15 minutes, and JD.com testing drones that can deliver within 10 minutes. Autonomous last-mile delivery will change the game altogether, with the potential to lower the cost of hyperlocal delivery and alter the regulatory considerations.
Payments, while not always lucrative on their own, are foundational to most versions of the “super app” strategy (see our Dec 13 2019 brief for more on tech players in financial services). For “super apps,” it’s not about the portal, it’s about the ecosystem. Payments is a “utility” in that ecosystem, part of the common fabric that supports a familiar user experience, serves as a gathering point for critical data, and impacts the cost structure for participants and the platform. This is especially true in markets that are digitizing. There, payments can facilitate seamless, low-friction transactions for consumers online and offline, and serve as a mechanism to digitize smaller businesses (e.g. what Google Pay is doing in India). Those businesses, once brought into an ecosystem, can help expand platform offerings and increase stickiness with consumers. Facebook, through its investments and planned WhatsApp integrations with Jio Platforms and Gojek, has made this a major priority for expansion in digitizing economies.
The case also holds true for digital banking services, which can open the door to a range of services such as lending, investments, cash management, budgeting, credit-scoring, consent management, and identity verification – in addition to helping entangle consumers in a tech player’s ecosystem and collecting their 1st-party data. This is among the reasons why a key battleground underway in Asia right now is access to a Singapore digital bank license.
With the prominence of Jio Platforms, global tech firms are also becoming increasingly interested in carriage – the mobile telecom part of Mukesh Ambani’s “communication, content, commerce.” In addition to the frenetic activity around Jio Platforms, Google has also been reported to have been in talks to buy a stake in Vodafone Idea in India, while Amazon was in talks around an investment in Bharti Airtel. The goal is to know customers throughout their full online and offline lives, personalize their experience, predict their needs, and optimize matching and fulfillment of goods and services.
Most of the firms above have an Achilles heel – profitability or trust
None of these rising tech firms are a slam dunk. All have their Achilles heel – typically profitability and/or consumer trust. Gojek, Grab, Rappi and Line are not yet profitable, and Rappi and ByteDance are facing heightened public and regulatory scrutiny. Jio Platforms is the best-positioned among them, not least because it can bank on its mobile telecom business and its home market of India, which has one of the strongest growth trajectories right now.
A big tech firm is a product of its home market, which dictates the launchpad for a firm’s global ambitions, determines its domestic regulatory environment, and colors the international market’s view of its products. ByteDance is discovering that with TikTok, with the flak it’s been getting for device-tracking and other privacy issues. While these issues aren’t trivial, many other apps apply similar tracking. TikTok stands out in particular for both its popularity and its association with China in an environment of heightened concern over Chinese surveillance. The recent ban from India was a particular blow to ByteDance, potentially resulting in TikTok losing its head start in a key market.
For a big tech firm, size of market is key to achieving profitability. Being a big tech firm is expensive – in talent, infrastructure, and marketing. It takes scale to achieve the kind of margins that the US big tech firms enjoy. It isn’t coincidence that ByteDance in China and Jio Platforms in India – the top two markets in internet users globally – are the ones that are doing better in terms of profitability among the group above. (Neither of them are ride-hailing firms as well.) This is particularly remarkable when you consider that a low-cost data plan in India might be less than 2 dollars per month. Gojek, in turn, is positioned in Indonesia – the largest country market in Southeast Asia and 4th-largest market in internet users after China, India and the US – while Grab and Rappi have aggressively collected markets in Southeast Asia and Latin America, respectively.
There’s an open question as to whether the rising firms are spreading themselves too thin. Most have been following in the footsteps of the current big tech firms in the US and China, seeking their own strategic flywheels, encouraged by massive inflows from SoftBank (before its implosion) and other investors (see our May 8 2020 brief on mega-funds). While Jio Platforms and ByteDance are better able to afford to invest in adjacent spaces, the less profitable firms are reliant on the willingness of investors to continue to fund their growth.
Gig-economy firms are in a particularly tough spot right now
Virtually all of the big gig-economy firms – Gojek, Grab and Rappi, as well as Uber and Lyft in the US – have struggled to attain profitability. The COVID-19 crisis has moved the goalpost even further. Even Uber, probably the closest to long-term profitability (it projected in Feb 2020 that it would get there by the end of the year) was blindsided by the pandemic. Uber, Gojek and Grab are all now pulling back from non-core verticals and markets, though in different ways. (Lyft, in contrast, has been hampered by its focus on US ride-hailing and has had to turn to meal and grocery delivery.)
The game for a gig-economy player was originally to grow all sides of its marketplace so fast that rivals couldn’t compete – even if it has to do so unprofitably by buying rider and driver acquisition. However, gig-economy business models are fundamentally dependent on local scale and market density, which means a player in the industry has to fight rivals for market leadership on multiple geographic fronts, with limited synergies across them.
It’s not clear whether a firm like Singapore-based Grab, which has established footholds in 8 countries in Southeast Asia – with different languages and regulatory environments – will be able to extract much in the way of cross-market synergies. Rappi, at least, has fewer languages to deal with in Latin America.
With the pandemic and where we are in the market cycle, firms are recognizing that market leadership across all verticals may no longer be possible – even for the largest players. Uber, for instance, is pulling out of geographic markets where it’s not #1 or #2 and cutting experimental projects, even suspending its long-held plans to become a financial services company. Instead, it has focused on Uber Eats market leadership and acquisitions in its core markets (e.g. Lime, Cornershop, Postmates). Gojek and Grab, in turn, have cut adjacent offerings to double down on ride-hailing and delivery. Unlike Uber, however, both have kept payments – a key element of the “super app” strategy – in focus.
For ride-hailing and delivery firms, the ability to navigate the regulatory environment is especially critical. In the US and Latin America, driver protests about working conditions have drawn the attention of politicians and policymakers. The basic premise that drivers are contractors operating on a neutral technology platform, without the benefits and protections due to employees, is being questioned and wearing thin.
In California, the AB-5 bill, which went into effect in Jan 2020 and instituted a more stringent test to be classified as a contractor, promises to restructure gig-economy business models. Uber and Lyft are currently being sued in California and Massachusetts to classify drivers as employees. If gig-economy workers win employee protections across the US, Rappi may face greater pressure in Latin America. In Indonesia, ride-hailing rates are now regulated by the government, while in Singapore, regulators have stepped up oversight of Gojek and Grab’s safety-related practices. It’s becoming increasingly difficult for a technology firm to manage the user experience without also taking on some of the responsibilities for workers and customer outcomes.
We’ll see market shake-out and consolidations, with companies that lack scale and differentiation getting washed out. If the tide of funding goes out, companies with weaker balance sheets will struggle with the costs of growth and expansion, and opportunistic players with stronger balance sheets will have the opportunity to pick them up. In Southeast Asia, the competition between Grab and Gojek has been a barrier to profitability. However, while a combined organization from a merger would have a dominant foothold in one of the fastest-digitizing regions, there are both company culture and antitrust obstacles to overcome.
The next tranche of regional big tech firms
The firms above are not the only regional big tech firms we will see. For instance, Yandex in Russia (the biggest internet market in Europe) is not just the country’s most popular search engine and largest tech firm. It has expanded beyond search into other arenas such as ride-hailing, food delivery, ecommerce, payments, content, and autonomous vehicles. While Yandex’s endeavors have largely focused on Russia so far, it is putting out feelers into Europe – for instance, planning a rollout of its car-sharing service Yandex.Drive in Europe later this year – fueled by its recent $1.1B fundraise.
Similarly, in China, the BAT firms and ByteDance are not the only giants in town with an eye towards global markets. Ride-hailing giant Didi Chuxing, for instance, is conducting autonomous-vehicle research and tests in California and plans to expand its robotaxi service outside China, leveraging partnerships with Toyota and other global automakers. Ecommerce giant JD.com, which expects half its profits to come from outside China within a decade, is setting up a logistics hub in Europe and partnering with Google and Walmart. Food-delivery giant Meituan Dianping, while more nascent in its efforts, has undertaken international partnerships to develop an autonomous-delivery solution, which it has hinted would have global applicability.
Africa is still an untapped opportunity, with Nigeria the 6th-largest market in internet users. The continent is digitizing rapidly, with initiatives such as MainOne’s broadband expansion in Nigeria, Google’s high-altitude internet balloons (which recently began delivering service to 31,000 square miles of Kenya), Microsoft’s Airband, and Facebook’s 2Africa. NY-based Andela is helping tech firms around the world tap into the pool of 500,000+ engineers across the tech hubs of Africa – which has certain parallels to how India built its tech capabilities by working with multinationals. Global firms are also carving out space in Africa – from Microsoft and Amazon opening up data centers, to Visa and Mastercard partnering with rising startups, to DHL’s Africa eShop ecommerce platform bringing 200+ US and UK merchant brands to 34 countries in Africa.
We’ll also see vertical players that expand beyond their initial foothold. For instance, Shopify – an ecommerce platform that powers small- to medium-sized businesses – recently launched a consumer-facing mobile storefront called Shop with a social feed enabling users to follow their favorite brands. Similarly, Stripe – a major payments backbone for ecommerce – has launched business lending (Stripe Capital), credit cards (Stripe Corporate Card) and card issuance services, among other new offerings, recently raising $600M at a $36B valuation to “invest even more heavily in [its] platform.”
Big tech, redefined
What we are likely to find in the foggy future is a more diverse set of big tech firms that generally tend to be more bounded in scope than they are today. There will be regional giants (such as Jio Platforms and Rappi), vertical giants (such as Stripe and Visa), and a handful of global big tech firms. The nameplates of those global big tech firms will probably not be too different than what we have today.
Tech firms will be more regulated and scrutinized in their home markets, with more forced transparency. In some cases, they may inch towards being more like a utility (e.g. government-set rates in ride-hailing) or national champion (e.g. serving as a government proxy). In international markets, global big tech firms will engage in more joint ventures and alliances with local players, perhaps providing technology without necessarily owning consumer relationships.
In this future, the pendulum among John Hagel’s 3 business types will largely swing back from product innovation and infrastructure to the customer relationship. Going forward, most paths to data will lead to and through consent, which is becoming the standard for privacy regulation and moving beyond just checking the box. Consent comes from trust-based relationships, so the tech firms that rise to the top will be the ones that can win on the consumer trust dimension.
Breakthrough product innovation will still be relevant, with the few that can crack the nut on problems such as autonomous vehicles, high-speed satellite connectivity, natural-language generation, and battery technology earning outsized gains. We’ll see many players back out of these problem areas, however, as they recognize how hard and expensive they are, in favor of licensing the future solutions after they emerge. (For instance, it’s unlikely that we’ll see Level 5 autonomous vehicles developed by low-margin ride-hailing companies.)
Consumers all over the world will be the winners, with access to world-class digital services in their home countries at a competitive price, along with greater privacy. They’ll enjoy a more connected experience web that abstracts away the complexity and makes everyday activities easier – a more seamless, cross-border version of the experience that is taken for granted in urban cities in the US today.
Disclosure: Contributors have investment interests in Microsoft. Amazon and Google are vendors of 6Pages.
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