Learnings on Commerce from China

We at Matrix Partners India spent a week in China meeting close to 30 startups and funds across multiple sectors. Here are some takeaways we have on the China market as well as vertical focused and content first Commerce companies.

Overall China

• China’s closed internet ecosystem still playing a role in company creation – for example bunch of content led commerce unicorns we met in travel and lifestyle were created because of absence of Instagram
• GDP/capita and consumption upgrade leading to companies scaling and monetizing fast - for example we met companies with only a few million DAU generating close to $100M in revenue
• Overall the mood seems muted with most investors expecting a slowdown in growth as overall internet/mobile penetration has plateaued
• Focus and interest in India for both Chinese companies and funds seems to be trending up, India seen as next area for growth (we have already seen Chinese content companies starting to make a mark in India)
• Big trends include KOL-led commerce, live streaming, and WeChat-led models
• Overall there seems to be a BAT “tax” e.g., social commerce is built on WeChat, Alibaba (Tmall) has gone big on live streaming
• Jury is still out on some ”successes” e.g., PDD; Others (e.g., Xiaohongshu) are more unanimous

Commerce

Despite the presence of Alibaba and JD multiple large vertical focused and content first commerce companies have created value in China. We met unicorn companies across lifestyle, travel, parenting, second hand goods, dating etc. who have built significant commerce business on top of their communities.

• Content/Vertical focused commerce companies built the product first – created well thought through products, spent 3-5 years building a sticky community and invested in strong product personalization/gamification to keep users engaged
• Monetized users later by creating a platform play which included commerce, ads and sometimes even offline retail, fin tech etc. – for example parenting companies have built offline daycare and education centers to maximize LTV
• Community, content and KOLs drove the commerce, not lower price – independent platforms cannot be cheaper than Alibaba/JD
• In a few cases these companies also partnered with Alibaba etc. to leverage their supply chain for commerce
• Influencers and KOLs have become big for platforms (influencers in some of these platforms make up to $200K p.m.) – getting access to them early is key

These are some of our observations from the meetings, happy to chat in detail in person. We also see some of these trends already playing out in India and believe there will be a lot of value creation in Commerce in India over the next few years. If you disagree with us or are seeing some of the same trends would like to hear from you. Please feel free to write tocommerce@matrixpartners.inand we will get in touch with you.