GGV Capital’s Hans Tung and Zara Zhang interview Bertrand Schmitt, the CEO and co-founder of App Annie, the leading global provider of app market data. Bertrand started App Annie in Beijing in 2011 and has since then grown it into a truly global company, with 450 employees across 13 countries today. App Annie is now used by industry leaders all over the world. Customers include Google, Snapchat, The New York Times, as well as Chinese companies like Tencent, Bytedance, and Xiaomi.
In this episode, we discuss why Bertrand, a native of France, chose to move to China despite the language and cultural barriers, how a non-Chinese entrepreneur can become successful in China, and why having a multi-cultural DNA can be the best asset for startup teams today.
Hans Tung: Hi there. Welcome to the 996 Podcast, brought to you by GGV Capital and co-produced by the Sinica Podcast. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.
Zara Zhang: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.
Hans Tung: To us, 996 captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.
Zara Zhang: On the show today we have Bertrand Schmitt the CEO and co-founder of App Annie the leading global provider of app market data. It’s used by industry leaders all over the world. Customers include Google, Snapchat and the New York Times, as well as Chinese companies like Tencent, ByteDance and Xiaomi. App Annie is a truly global company with 450 employees across 13 countries.
Bertrand has worked in mobile internet across the U.S., Europe and Asia. Previously he was an executive at two internet analytic companies that were both acquired. Bertrand grew up in Paris, came to the U.S. to get an MBA at Wharton and then went to Beijing where he co-founded App Annie in 2010. Welcome to the show Bertrand.
Bertrand Schmitt: It’s great to be here.
Zara Zhang: Could you tell us the founding story of App Annie? I think you had a pretty unconventional path. Most people start their businesses elsewhere and then expand into China but you started out in China. App Annie was based in Beijing for the first 4 years and then moved to its headquarters to San Francisco. What was it like to start a company in China?
Bertrand Schmitt: My background was atypical coming from Europe with experience in the U.S. and I saw a few things. I had a lot of business trips to China and I thought that China was going to get even bigger in tech and in smartphones. China was already very big in feature phones and I was seeing a new wave in smartphones coming at some point. I knew how to set up in Europe and the U.S. and do business there. I didn’t know as much in Asia so I felt that by starting in Asia, I would give us a better chance to be successful in Asia, especially in China, but from my perspective smartphones were also going to be big in Japan, Korea and the rest of Asia at some point. So that was my mindset, and obviously for finding talent and talented engineers, I felt China was really a great place for that.
Hans Tung: What were you doing before you came to China?
Bertrand Schmitt: I have always been in the mobile industry. I started developing apps – believe it or not – for calculators. I was 15 so probably 25 years ago. I always had a passion for the small computer in your pocket. I’ve gone through everything: calculators, PDAs, web phones. I always had a keen interest in this device in your pocket. And I’ve always been more on the B2B side, providing software, middleware initially and then analytic solutions, focusing on the performance, speed, availability of mobile websites.
I saw the iPhone’s introduction, but especially the App Store, really solving big issues that we previously had with smartphones. It was difficult to discover, distribute and monetize content. From my perspective the App Store was really changing that. Obviously Apple and Google platforms were the first to be ready with what you wanted as a real computer in your pocket.
My take was that in 2010 it was time for me to do something about it. I was excited to think actually more on the business side. I was trying to understand what was happening in this new app industry and I couldn’t find a lot of information about that. So that’s how App Annie was started: with trying to understand what was happening in the market, trying to provide tools and data to developers about what was happening in the market. We started with a free offering first and we were quite amazed how well it was doing. Step-by-step, we provided a premium offering on top of that.
Hans Tung: 2010 was a special year for most smartphones in China. That was the year Xiaomi was founded – we had a co-founder Bin Lin on being Chinese on this podcast show earlier. What did you see about China in 2009-2010 that got you to want to go to China and start your next startup, App Annie, here?
Bertrand Schmitt: A few things first. Everyone had feature phones, everyone was using SMS, so to me, smartphones were inevitable. Prices were going to go down, people would want to have something more powerful. At that time, 3G was barely there but I was a big believer in China’s ability to build infrastructure. That’s exactly what happened. You needed that 3G, but I believed it would come. It was more a ‘when’ not an ‘if’ and on when, I did not expect that it would take that long. That was really a big part.
I must say that one thing I really liked when I went to China was having people give me not just 1 business card, but 2, 3 business cards. I had seen 2 business cards but I’ve never seen 3 outside of China and that really got me excited. I felt – and I still feel today – that China is one of the most entrepreneurial countries and one of the countries with the most energy. In the U.S. you can feel the energy in Silicon Valley and New York but outside of those places, it’s not that clear. In China you feel that energy everywhere. That’s something I like. It’s not just in tech, not just in finance, it’s everywhere.
Zara Zhang: When you went to China did you know anyone there or speak the language at all?
Bertrand Schmitt: When I went to China I didn’t speak a word, actually. I had maybe one or two friends in Shanghai but I actually started in Beijing. I was keen on moving to China and I decided to work with a company, Gomez, who sent me to China. I was the first non-Chinese employee in China and the office was in Beijing so I ended up starting in Beijing and got connected to Beijing after that.
Zara Zhang: What was that adjustment process for you? Did you encounter any difficulties integrating with the local culture, especially building a company there?
Bertrand Schmitt: I would say that my first 18 months, I was mostly still working for Gomez so in a way I learned what to do and what not to do in China. It was an easier adjustment. I’m happy to have learned that way before starting my own business. It give me time to connect and network with a lot of people.
Hans Tung: That was 2008?
Bertrand Schmitt: Early 2009, to connect with people and try to get a sense. Because I decided to start a business.
Hans Tung: So you went to China after the Summer Olympics?
Bertrand Schmitt: Yes. I went to the Summer Olympics because I wanted to see that. That was a key event. I was also there for the International Expo in Shanghai. I was living in Shanghai at the time. I’d say I went there in 2008. I was coming to China over 6 months for business or personal reasons. I finally moved in January 2009.
Initially, it was definitely hard to come. If you remember, at least for a foreigner, you have to write an address, have someone else write the address. At the time, I was trying to use some pocket PC phones from Microsoft and again, 3G was barely working, maps on the phone were barely working. It was not as easy as it is today. Today it’s pretty easy to find your way, but at that time, it wasn’t so easy.
The first 3 months were special. At the time, obviously I tried to learn Chinese to start to be able to get around more easily. It was hard initially but I got used to it. So when I was starting App Annie, I had my network, I knew people, I know how to get around. I started a business in France and I like to joke once in a while that if you can do it in France, you can probably do it anywhere.
Hans Tung: How good is your Chinese now.
Bertrand Schmitt: “Yi dian dain 一点点”. It used to be better, but I’m using it less so that’s bad. But now that I have a daughter – my wife is from Taiwan – so I’m going to speak more Chinese.
Zara Zhang: So you moved the company’s headquarters to San Francisco around 4 years ago. What went into that decision? Do you still have a large team in China? What are they working on?
Bertrand Schmitt: We have more than 150 people in China out of 450 globally so Beijing is our biggest office with SF. Our engineering team is still headquartered in China so that has not changed.
Hans Tung: Do they work longer hours?
Bertrand Schmitt: I think everyone works longer hours. One thing is that people can also work remotely. We are more focused on what people deliver than the exact time at the office, so that’s more how we evaluate that. Between the search team and the engineering team, they’re pretty different organizations but our teams are definitely working hard.
Hans Tung: You see that everyone’s working hard in China. One reason our podcast is called 996 is that we do see 9 a.m. to 9 p.m. 6 days a week.
Bertrand Schmitt: You don’t see that in Europe and I’m surprised you don’t see that much in the U.S.
Hans Tung: Not as much anymore.
Bertrand Schmitt: Yeah exactly. I think it used to be more that way before.
Hans Tung: In the 80s and 90s but not as much today.
Bertrand Schmitt: That’s part of the energy. Korea is probably the place where I see people working the hardest if you look at it from a world basis.
Hans Tung: Do you find the quality of work to also be very good? Some people think that you work long hours because you’re inefficient. What do you think?
Bertrand Schmitt: I think it might be true in some companies but I don’t think it’s true at our company. We are very focused on what people deliver, again, not just the time at the office. That’s really our main criteria: the quality of the job, the performance delivered. I guess it depends on the culture of the company as well. You can be inefficient if you want, but we definitely don’t want that.
Hans Tung: When it comes to the internet in China, it seems like you can have both fast and a lot of hours, and still have good work. That’s a scary combination.
Bertrand Schmitt: Yeah I think so. At least the best Chinese companies. They definitely do that.
Zara Zhang: I think at the end of the day, 996 is more about a mindset and a motivation, not just merely long hours. But people in China are just hungrier and they want to work more. If they don’t work 996 they feel left behind if their company is moving so fast.
Bertrand Schmitt: I think China and some other markets are definitely hungrier compared to Western Europe and even the U.S. sometimes. There’s definitely a gap and I’m surprised. I’ve always been hungry, so I’m not sure why some people aren’t.
Zara Zhang: As a result do you see more innovation coming out of China due to this competition? What are some examples of innovations that came out of China?
Bertrand Schmitt: I think China has been very impressive when it comes to mobile innovation. It’s probably because even if it started a bit late in smartphones, it can actually move very fast. In a way, it was not slowed down by the existing web and internet presence. People made a move and they switched very quickly. I think it helped Chinese companies start to think differently. The market wasn’t just like, ‘What is it that works in the U.S.? Maybe we should do it in China,’ but developing much more innovative solutions.
I think WeChat was very innovative. They didn’t copy anyone else. Maybe they copied QQ, but it’s the same company so that’s fine, that’s okay. That was very impressive, when you think about what Tencent did from QQ and said, ‘OK, we’re going to bet on a new app for smartphones.’ It took so long for Facebook to spring into action and make an acquisition. So this was very impressive. You had LINE up in Japan at the same time, you had Kakao also, but I mean, WeChat probably started it. So that’s very impressive.
I think Didi has been very impressive. It started around the same time as Uber, maybe a bit later, but if you take Mobike, Ofo in bike-sharing, this is new and this is a first. Even if you see some other companies like Meituan or ByteDance now, there’s quite a lot of deep original innovation. I think these past 5 years are pretty new and I’m not even talking about Xiaomi, which was a great way to launch a new mobile company developing funds who believe it and they did very well.
It’s about attacking the problem from a different and new angle. The past few years have been full of real innovation in China especially in the mobile space but also other areas like drones, DGI. It’s very, very impressive. Remember the drone space 5-8 years ago? I mean 5 plus years ago. It was not clear who would win and they’ve done extremely well.
Hans Tung: App Annie was a global company from Day 1. Back then in 2010-2011, in China a lot of people wanted to do startups that were only focused on China. But you saw something different. What did you see?
Bertrand Schmitt: My take was that I like China, I saw China as a market potential for us longer term and again, this great talent availability. In our space, at least in B2B, it was easier to start from one location but to really cover the world relatively easily and quickly and in a way that where you are based is not so relevant to where you can sell. I feel that in B2B, if you have a great product, you should scale it as far as you can. There is no reason to be shy about that. Also, me being a foreigner in China, it makes sense that I was not going to be focused on the B2C China focused type of market opportunity. But a global market on topics that I know very well in B2B: I felt it could work pretty well and ultimately that’s what happened.
Zara Zhang: So what do you think of the B2B space in China in general? A lot of people think that enterprise in general is quite behind in China compared to more developed markets like the U.S.
Bertrand Schmitt: I guess it’s probably true. I would say for us, from our clients’ perspective, our clients in China are world-class. They have the same questions, same issues they want to solve compared to our clients worldwide. So from that angle, we see very little difference and some of our biggest clients are in China. But definitely when we’ve seen other software opportunities we can leverage, sometimes there are fewer opportunities available.
A lot of B2B companies have been shy about going to China. I’m not sure why. I remember in the old days, 10-15 years ago there was this issue about getting copied in China if you had a traditional license model. I think especially with a SaaS business model, this is really not an issue. I’m a bit surprised there is not more in terms of big, global B2B tech companies going into China because I think the opportunity is big. Chinese companies are being innovative, they also want the best solution. I think it will come, even if it’s a bit late to the game.
Maybe another issue you could argue is the availability of cloud computing solutions in China. If you are a B2B tech company, you might have more work to do to support the China market, so that’s probably a consideration.
Hans Tung: When you decided to move headquarters from Beijing to San Francisco in 2014 was the decision purely business or was it personal as well?
Bertrand Schmitt: It was purely business. We saw that it was time for us. Our first investor was IDG Capitol in China. We got lucky with them. I knew Xiaojun for a long time and he has been a great supporter. But what we saw is that our more natural market on the investor side was in the U.S. because there is more depth in terms of B2B tech and global tech in the U.S. So trying to fight our way as a global company in China, trying to find financing was not easy. It was easier for us to do that in the U.S. We did that successfully for our Series B, Series C but step-by-step, we saw that being closer would be even better for us. That’s one.
Two was in terms of talent. Engineering recruiting in China was great but for that more global mindset, B2B mindset, it was difficult to find sellers, marketing people who had this mindset and experience. You could find them but it would be very rare and maybe even more expensive than in San Francisco. So yeah, at some point we made that decision.
Hans Tung: Same thing for me personally as well. Having been in China for 8 years on the ground, I decided to move back to California in 2013 also because I wanted to build a more global practice. When you have operations both here in San Francisco as well as in China, you can do so much more together having presence in both markets.
Zara Zhang: I’m curious about your experience raising money from Chinese VCs at that time. Both Hans and Bertrand can comment on this, but I feel like at that time, not a lot of Chinese VCs were investing in enterprise companies let alone those founded by non-Chinese entrepreneurs. What was your experience like and was there anything that surprised you?
Bertrand Schmitt: It was definitely a rarity in that space. Some were definitely surprised to find out that we were trying to get financing. I think the bigger issue was more the fact that most were focused on – for good reason – on B2C China opportunity. I mean, it’s fair: B2C in China is such a big market opportunity – why bother with the rest? It was more trying to find the type of investor who would understand what we were trying to do. It’s not easy. We wanted people who understand and believe what we do. If it’s a stretch for them it would be a strained relationship at some point in time. So we were trying to find that and there were not so many who were really international in mindset and ready to work in global.
The other piece was smartphones at the time. Very few in China were believing or thinking about apps and iOS and Android in 2010 and 2011. It was in 2012 that it started to change. But when we started, we were like, ‘Okay, this is a feature phone, we don’t know when there is no 3G.’ It was very early for people to think about that. So there was also this gap. It didn’t feel like that bet would even touch China at some point. Some were not thinking that way.
Hans Tung: 2010 is when you started and when Xiaomi started. At the time, it wasn’t obvious in China that smartphones would take over. And for both to succeed, it was almost that Motorola, Ericsson, Nokia all had to fail. Back then, Nokia was everywhere in China. Not to badmouth Nokia – it’s still a great firm. It’s just that the world had to change a lot for you and Xiaomi to succeed. And yet it happened in a very short 3-year period.
Bertrand Schmitt: Yeah and I remember discussions with some of the biggest players in the mobile space and they wanted us, for instance, to support Blackberry, Nokia, Palm OS. I was like, ‘No way. These guys are walking dead and they don’t know it. We are not going to support that. I’m not going to invest our precious resources.’ My view even very early on in 2010 was that it would be iOS, it would be Android. The rest were just not on par. If you don’t get it, that’s fine, but I’m not going to support the walking dead.
Hans Tung: And I think the enterprise market was tough – very tough – back in 2010, 2011. There were very few successful examples at all. But I think since your success, times have started changing. More and more VCs in China are looking at the enterprise sector now. I think that over time, given all the big Chinese internet companies have grown up, it makes sense to have more enterprise companies that sell services and solutions to these big Chinese internet giants just like in the U.S.
Bertrand Schmitt: Completely, I totally agree.
Hans Tung: It’s fun being able to invest and operate in multiple markets because you see some of the trends happening in one and you just know it’s any time that it could happen to the other country and vice versa. And when people just focus on one country, it’s very easy to have these blind spots and not see that coming.
Bertrand Schmitt: Yes that’s totally true and personally that’s one thing I love about running App Annie: that we operate in certain countries. We have around 40% of our business in Asia, 40% in the Americas and 20% in Europe/Russia.
We sell market data, so we are familiar and see everything that is happening in the world at least in apps. But also, we have this direct contact and touch points with clients everywhere. That’s very exciting for me, to see those small differences in different markets, to see one that can serve as a crystal ball at least for some categories about what’s going to happen in some industries. Some of our clients definitely use us for that exact reason: they want to learn what’s coming. The smartest ones want to see in advance what’s happening in China, in Japan and in some other markets.
Hans Tung: Definitely, looking over the last 2-3 years, politics is very local. There’s a strong pushback against globalization in parts of Asia, parts of Europe and obviously here in the U.S. as well. But the innovation, entrepreneurship and knowledge diffusion is definitely a global phenomenon.
Bertrand Schmitt: I think politics are usually a blip in history, hopefully if it doesn’t go too badly. Let’s not forget that everything keeps going, companies keep doing business. There is all this international work, so I’m very hopeful it is just temporary friction and nothing more.
Zara Zhang: I wanted to dig deeper into the reasons why China just leapfrogged into mobile so quickly. If you ride a Beijing subway today, everyone is glued to their phones and the mobile payment market in China was 11x that of the U.S. last year. A lot of Chinese companies these days don’t even bother to make websites anymore. They just have an app and just a bare website with a QR code and maybe a WeChat official account but people are just not on desktop that much. What do you think is the reason why China just jumped into mobile so quickly even more than the U.S. did?
Bertrand Schmitt: For me, that’s actually the usual question I’m always asking: why have we been so slow in the U.S. and in Europe to get to mobile? I’ve been so shocked because I just go back to, it’s so convenient to use the device in your pocket everywhere you are. In a way, for me, China is more of what it should have been everywhere. So, I have the same question.
I mean obviously there are logical reasons. There was a deeper web and laptop/desktop presence in the U.S. in terms of proportion per inhabitance. In China, of course, you had laptops, internet but the proportion of users were pretty small.
Hans Tung: Well, in China for desktop, we still had about 600-700 million desktop internet users.
Bertrand Schmitt: Yeah but it’s not always your laptop or your desktop. It might be your office one.
Hans Tung: Most likely your office. Maybe at home, but mostly your office.
Bertrand Schmitt: Or also cybercafes. I think for me, it’s a good experience. People are moving to gaming on smartphones in China very fast. This was so shocking – to see the gross rating gaming in mobile in terms of revenues. It was less shocking when you think actually it was a move from ‘I have to go to this cybercafe, I have to pay some extra money just to use a laptop’ and now, ‘I can do it from anywhere.’ I mean, that’s a pretty obvious reason to switch. But for people in Korea or in Europe where you can play from the comfort of your home, it took more time to actually move to mobile.
Bertrand Schmitt: That’s true. And in China, there’s more subway and high speed rail now. So you spend more time in public transportation and a great way to kill time is to surf on the smartphone.
Bertrand Schmitt: So yeah I agree with that when compared to the U.S. If you compare it to Europe, it’s less true because Europe has mass transportation at big scale but still, they were not as fast as China to move to mobile. And I’ve seen it in France: you probably don’t know there was a device called Minitel a long time ago in the 80s. France was the first digital internet connected country in the world. We used free terminals to access online services in the 80s. Every French person had that in their home. It slowed down internet adoption in France by years.
Because why do you buy your PC? ‘OK. It is a bit fancier screen, better image, but you have to pay for it. The other one was given for free.’ And it was more complex to use so it took 3-5 years, that were lost in a way in France, to move to the internet. I think it’s a similar phenomenon in Europe and the U.S. where you have these addictions or comfort of your home to use your PC that’s good enough.
Hans Tung: So the need to change is less.
Bertrand Schmitt: Exactly. But I would say one thing: it’s not just consumer. When you look at some of the big giants in Europe and the U.S., they were so slow to provide a good mobile experience. That mobile experience initially was just horrible. It was done badly, people didn’t care, it was just ‘Oh yeah, mobile is 20% blah blah blah, it’s not big enough.’ But part of the issue was, yes, their service was bad, so people were not using it. China moved very fast to provide a great consumer experience.
I always go back to that. If you don’t provide a great UX, somebody else is going to do that and you will be in trouble. So you have to focus on that. Initially, a lot of European and U.S. companies were seeking more ‘How do you adapt my website to make it a bit more mobile friendly?’ It was not like, ‘Let’s have a mobile first app because we see this as the future and we have to organize how we work.’.
It’s probably in 2015 that I felt that the level of service started to get better in the U.S. but maybe even since last year or 2017 that I feel companies really get that mobile is more than half and if you don’t put all your resources in mobile, they are in big trouble. The smart companies now have stopped investing on the web. It’s like, ‘It’s okay, it’s running. Let’s freeze it. We cannot afford not to invest everything we have in mobile because that’s where all the growth is, that’s where our users are’ and all of this. But it took a while to get this mindset. China got it much faster.
Hans Tung: Beyond China, the U.S. and Western Europe, you said you are in 13 countries. Do you see other emerging markets increasingly looking more like China or the U.S.?
Bertrand Schmitt: We’re in certain countries but we sell in many more countries so we have clients in maybe 30+ countries. Our team on the ground is in 13 countries but we cover more. I would say some developing markets are definitely more like China: India, Indonesia. I’m very impressed by Indonesia. In some ways it might be more interesting as a market than India. I feel in India, there’s volume in terms of downloading, time on devices, but the capacity constraint means monetization is more difficult. I feel it’s easier to do in Indonesia.
Hans Tung: We agree. We think Indonesia’s faster to monetization.
Bertrand Schmitt: And we see a lot of Chinese money in Indonesia as well. And it’s a huge market.
Hans Tung: I’m hopeful about India. I still think India will be big. It will just take a bit more time, that’s all.
Bertrand Schmitt: I think a lot of people try to see India as like China. It’s a billion plus people, similar sized opportunity, lots of smartphone, but at some point there is also GDP per capita. How easy is it for the market to grow?
Hans Tung: It needs to grow faster.
Bertrand Schmitt: Exactly. China has a huge middle class that can be monetized whereas in India, the middle class is actually much smaller, maybe the size of the UK actually, in terms of the middle class. So there is a big difference and I think Indonesia doesn’t suffer from such a gap. Indonesia is very interesting. Thailand, Vietnam: we see a lot happening there. They’re smaller markets than Indonesia but it’s definitely growing with similar characteristics. But at the end of the day, if I look at numbers for instance for Chinese companies going to other markets in terms of monetization, you still see the U.S. first. You see Japan, you see Korea but I’m expecting a lot of preemptive investments that are not monetizing yet and some of these markets from Indonesia to India to Vietnam to Thailand.
Hans Tung: When job applicants email you looking for opportunities at App Annie, for those from the U.S. or the Bay Area, what’s their profile? Do you see more Chinese people applying for positions at App Annie or more Americans and Europeans?
Bertrand Schmitt: I would say if it’s App Annie for a U.S. position, surely more U.S. citizens or residents. In the Bay Area you have a lot of people with Asian heritage. So our team is definitely looking very Asian. But I would say it’s probably quite typical of the Bay Area percentage, maybe a bit higher percentage given our roots I guess.
Hans Tung: Do you see people here in the U.S. asking you for opportunities in China?
Bertrand Schmitt: I would say no. Very rarely. We are pretty happy to have sent people from China to other places, from other places to China. We have internal mobility. Sometimes it’s personal interest but in many cases it’s us who see more of a logical connection to have some people at some location.
Hans Tung: We’ve started seeing more and more Chinese engineers and product managers here in the Bay Area to have interest to either work for a Chinese firm here in the Bay Area or even go back to China. The last time we saw something like that was back in the 2004-2006 timeframe. Since then, it’s been less but in the last 3 years we have seen it pick up again. If this diffusion of Westernized talent going into Chinese companies, our predictions are that Chinese companies could be more global 5-10 years from now as more of this Westernized talent spend more time in Chinese companies again.
Bertrand Schmitt: We have product management here in San Francisco but most of our engineering is in China and Europe actually, close to Amsterdam. So it’s not as if we have big hiring efforts here for engineering production. So there is probably some profile we really don’t see because we are not looking for them.
Zara Zhang: I think for that wave there both push and pull factors. So it’s getting harder to stay in the U.S. because of immigration policies. And China is looking increasingly appealing. I’d also argue that the phenomenon of Chinese students coming to the U.S. for college and higher education really just took off in the past 1-3 decades so maybe in the next few decades we’ll see a lot more internationalized Chinese talent.
Hans Tung: That’s our bet and that’s why we’re doubling down on the U.S. while still growing in China. We want to be in these two markets and at the same time we also will be looking at opportunities in Indonesia, India and even MENA. Because the rest of the emerging markets, those with large domestic economies could look at both the U.S. and China for inspiration. Increasingly, the Chinese models are becoming more relevant than before.
Bertrand Schmitt: Yeah I think China has one strength actually from that angle. It’s that from far away, people think China is one big homogenous country but it’s not. So you have to Tier 1, Tier 2, Tier 3, Tier 4 cities. Even in the app space, we see differences by tier of cities. But my point is that the strengths of Chinese app publishers is that to have a successful app – the most successful ones – they had to serve the needs from Tier 1 to Tier 4 cities.
Take Japan, Korea, the U.S., Western Europe: they had to deal with mostly what you would call Tier 1 or Tier 2 cities. The same in terms of services, in terms of network quality expectations, in terms of device expectation. It’s more high-end, the network is always there, great quality. So my point is that they have developed apps that actually don’t always export well in developing markets whereas actually Chinese developers and publishers have built apps that actually scale from the low end to the high end.
So I think that’s giving actually a very interesting unique advantage to Chinese companies when they go to any market because they know how to cover from very well developed to less developed. And that’s pretty unique to China. Again if you take Japanese companies for instance, they usually have such high expectations of how high end your phone is, your network quality is always on, always there.
Hans Tung: That’s the Japanese experience.
Bertrand Schmitt: But it makes it harder for them to go and localize because a localization is much harder actually.
Hans Tung: That’s an excellent point. A lot of people think that China is big, therefore companies grow fast while people miss the nuances that because China has a lot of competition, you have to innovate faster because China has 4 different tiers of cities, you deal with different quality of networks and users and taste. It ends up that over time, the models that have been built in the product could be more relevant for other emerging markets around the world.
Bertrand Schmitt: It’s very intereting on the competition side. Competition in China is so intense that surviving once, you’re pretty good.
Zara Zhang: A lot of popular apps in China started on the ground with really low tier cities like Kuaishou or Toutiao or even QQ started in the Internet cafes. That’s one of our investments theses here in the U.S. as well. Entrepreneurs need to learn to make a mass market product and not just appeal to people in big cities.
I also monitored the app store on App Annie of emerging markets, especially the Middle East and Southeast Asia. We’re starting to see more and more apps made by Chinese teams making those top ranks. Is that a phenomenon you’re seeing and how optimistic are you about the ability of Chinese teams to make products that appeal to other emerging markets?
Bertrand Schmitt: I also want to highlight the initiatives that the Chinese government has: One Belt, One Road. We tried to measure how Chinese companies were following that. It was interesting for us to see that if you look at share of the nodes, it moved from 45% in Belt and Road countries to 55-57% of the nodes outside China happening in these Belt and Road countries. So I see interestingly some alignment between some level of government policy and what successful Chinese internet companies are doing. So that’s another angle when you look at the internationalization of Chinese companies, is that they are definitely following some of these trends and doubling down in some ways in some of these efforts.
I’m pretty positive because of again, what we just discussed: that Chinese companies have developed software that is pretty hardened and can work at different levels of tiers of capacity. That’s what’s you need in some of these markets. Other ones we’re looking carefully at are Google, Facebook. Google is launching some special version of their app, the global version. Usually Chinese do not have to do that because they don’t want to create two versions for their own market so it’s better designed from the ground up, in a way, for this type of experience.
So I think there is a strong result actually right now already from Chinese companies and I see the capacity to keep going up but obviously there are still some constraints. If you take social for instance. Once a platform has established itself it’s very tough to move it. So if WhatsApp for instance is already established in this market, I don’t think it would be easy for WeChat to take over. But there are many more opportunities than just social or communication apps.
Hans Tung: Two apps jump into my mind. One is Wish in San Francisco. We were fortunate to co-lead Series B, I’m on their board and it was started by co-founders who were both first generation immigrants: one from Eastern Europe and the other from China. And they were educated in the West and then worked at Google and Yahoo respectively and built an app that leverages suppliers from China to sell to consumers worldwide. They’re high up on the App Store chart for both the U.S. and many countries in Europe.
The other app that jumped out at me is Jollychic in Hangzhou. They are high in the App Store ranking for MENA countries. Also a Taobao-like business model in the app with suppliers from China selling to consumers in the Middle East and they’re very localized with 500 employees in Jordan and another 500 employees in Saudi Arabia in Dubai, in addition to having people in Hangzhou.
Wish has operations worldwide with headquarters in San Francisco and then people in Shanghai and Hangzhou. So those are the two companies jump out at me as the next generation of global B2C companies, kind of modeled after you. You’re in 13 countries and serve 30 countries as a B2B company. You three are the type that remind me of the next generation of very globalized operations and companies. Xiaomi is probably more regional in Asia and Eastern Europe more. Overtime they’ve come out more. But the three of you – App Annie, Wish, Jollychic – strike me as someone who’s really built around taking advantage of competitive advantages of nations to compete in a very globalized environment.
Bertrand Schmitt: Wish is a great investment.
Zara Zhang: They are #1 across all Android apps consistently.
Bertrand Schmitt: For me, what I like about them is that they’ve thought differently about the commerce experience. It was not just ‘Let’s do e-commerce on mobile,’ it’s more like ‘Let’s do something new that is more focused on how you might want to shop on mobile.’ And I think it’s pretty rare surprisingly. Most m-commerce apps try to bring the e-commerce experience to mobile. I think that Wish has a competitive edge. I am actually amazed that there’s aren’t many more working like that. It’s very surprising, but that’s very good for Wish.
Hans Tung: We also ask the same question: how come more people don’t do that? Then I realized that I lived in 10 cities. How many cities have you lived in?
Bertrand Schmitt: Maybe not 10 but from Paris to Philly to SF to Shanghai to Beijing. So, 5.
Hans Tung: Yeah. When I look at the Wish guys, they have also been in multiple countries. I think the hardest thing to overcome and the biggest competitive advantage that is most sustainable is having a multicultural DNA and perspective because you can see the same set of data points and draw very different conclusions. One’s very provincial, the other is across multiple continents so that when you interpret the data, you’re going to interpret it very differently because your mental frameworks are very different.
Bertrand Schmitt: Yeah, I’ve also seen that people are just scared to go to some other countries. They just don’t know. They have no experience: they’ve always been in one country or one continent. And suddenly when you talk about going further away, they are pretty scared. I still remember my first company that I started in France when I was less global minded. It was tough to see beyond Europe.
Hans Tung: Your universe was already very big across multiple countries already.
Bertrand Schmitt: But yeah, that’s actually quite true. Sadly so. But I think it’s coming more and more people in their 20s, 30s: it’s a bit more of a global and diverse experience than just living in one region, one country.
Hans Tung: So when I look at what you do, from the outside, I view your strongest, most competitive advantage that’s more sustainable is your multicultural experience, background, perspectives and ability operate in multiple countries. A lot of companies just can’t do that.
Bertrand Schmitt: Another piece I’m proud of is that if you look at our exec team, we have people from Canada, from India, from France. It’s very global.
Hans Tung: It’s not easy managing a global operation.
Bertrand Schmitt: Well most of us are based in SF but with very different perspectives and I think that’s quite a strength. Sometimes you see companies who are very localized to one market, sometimes you have a founder or execs who barely speak English in some markets so that’s very surprising to me in this day and age. Because it’s going to hurt you. How do you motivate team members and also people in different markets if they don’t believe you can really understand them in some way?
Hans Tung: Any team that’s very homogeneous is not bad, it’s just that there’s a cap, a ceiling to how far they can go. The world’s moving from a billion internet users, mostly on PC desktops in 2005, to now 3-4 billion mostly on smartphone worldwide and the new users will look different than some of the markets that we all have seen before.
Bertrand Schmitt: Yeah and if you go global too slow, somebody else is going to be smart and build a very strong base and suddenly it’s too late for you to go there.
Hans Tung: We definitely encourage all of our audience to spend more time in other markets, other countries and we tend to invite guests who have a more multicultural perspective as well.
Zara Zhang: Nothing can replace actually spending time on the ground in those countries. You can read and listen to all you want but it takes actually going there and living there to understand.
Hans Tung: Even Zara, at a young age, she has already grown up and matured in China, went to Singapore for high school, went to a Harvard in Boston on the East Coast for college and is now here in the Bay Area. The more you travel, the more you see, the more advantage you accumulate.
Bertrand Schmitt: Yes and the more you can see beyond what you can easily see – you see not just the impact of one market, one situation, one culture. But you can see beyond that. You can see the impact of a specific culture on how people react differently. It can be a different logo, experience, UX – all of this is, what works in one market might not work in another one. You need that perspective to get that sense and separate success from what is local success to what needs to change to be more global success.
Hans Tung: I’ll never forget the first time I saw DoCoMo’s i-mode back in 1999. The experience was shocking. It was like ‘Oh my God this is what the future of phones should be’ but Japanese companies just never really expanded beyond Japan. The next time I had a similar feeling was in 2007, watching the iPhone in 2008 and I went, ‘Oh, this is going to change the world’ because I know what I saw 10 years ago with i-mode but ‘This is much more open. This will have a much bigger impact.’ So I think that perspective helped me to bet on Xiaomi in 2010. It probably impact you to start App Annie at the time as well.
Bertrand Schmitt: In the early 2000’s, it was also very tough to build global company. How would you do that.
Hans Tung: There were 35 million users worldwide in the late 1990s.
Bertrand Schmitt: But even the base communication: you couldn’t communicate on your phone or you wouldn’t have had internet connection everywhere. Skype was just barely starting so basically you are missing the infrastructure to be efficient at scale globally. But I felt strongly in 2010 that we were past that. We had the infrastructure to be small and at scale globally at the same time.
Hans Tung: Do you pay much attention to cryptocurrency or blockchain? That’s the hot topic of the day these days.
Bertrand Schmitt: I look at it from afar. I’m a bit surprised on one hand because I’ve look at it for a long time, 6+ years since it started. I’m not sure what happened last year to make such a big difference. But I would say I look at it from afar. I very much focus on apps and mobile first.
Zara Zhang: I wonder which Chinese app are you most impressed by? Because you have access to all these numbers.
Bertrand Schmitt: I’m still a big user of WeChat so I’m very impressed by that. But again I must say that if you take MoBike, Ofo: I’ve been very impressed because it’s true Chinese innovation. Not just that, but I feel like Didi by the way, it’s having such a positive impact on cities. You know people take fewer cars and you can go from place to place more efficiently. As you know China has some pollution issues. I’m not sure how it can scale in other markets. I know they are trying but the market conditions might be quite different. But in China it’s obviously solving – you can call it – the last mile issue as we would call it in fiber in the past. It’s very interesting to me so I’m very impressed from that transformative perspective that Didi did initially and now on bikes.
Hans Tung: And you know EV cars are coming.
Bertrand Schmitt: Yeah there is a lot going on. Transportation is being changed through mobile and apps and that’s very exciting. Because sometimes you see these huge crazy plans from governments to invest, spend billions if not more – hundreds of billions – and they’re having less impact than smaller startups who have invested smartly maybe $10 billion with that’s not that much in the grand scheme of things. So that for me is very interesting. I don’t think governments fully get what it is that’s happening.
Zara Zhang: Some people have called WeChat ‘app killing’ because they have mini programs where you can build an app within the WeChat ecosystem. Do you think 10 years from now we’ll still have screen after screen of apps on our phones or do you think it will go towards more consolidation, like more super apps?
Bertrand Schmitt: I don’t think so. I think we are probably at the max on super apps. To be clear, people have been talking about super apps for about 5 years. WeChat has been claiming that, Facebook has been trying. I think there is a limit. First China is right after India, the biggest user of apps. I’ve heard that it’s typical that the Chinese are using more than 40 apps every month on the phone, so beyond the U.S.
It’s not that WeChat is killing other the apps, unless you know from your investment. Most apps are doing very well. So I think you want to see these super apps because that’s true, they’re definitely important but more as a lead gen channel, sometimes as a super channel but I don’t think really beyond that. It also goes with technologies: there is only so much you can do with HTML5, even if it’s getting better from WeChat or Facebook. You don’t have full access to the phone, you don’t have the same capacity, you don’t want to just depend on that super app as a publisher. Maybe it tempts you to get cheaper users but once you get them you want to keep them.
So I think the bigger difference will be more for smaller brands, smaller apps that don’t really want to invest. Who aren’t really technology companies and believe it’s cheaper to just live purely in the WeChat environment and it might make sense for SMBs to have this perspective. But I think beyond these guys, it’s more a very careful approach and more leveraging the super apps as a user acquisition channel.
Zara Zhang: What advice do you have for non-Chinese entrepreneurs who might want to start a venture in China? I think a lot of non-Chinese people these days are interested in getting involved in the ecosystem there but they’re pretty intimidated by the culture there, the language and how different everything is.
Bertrand Schmitt: Personally, that’s what got me interested – how different it was. I was excited to discover new places, a new culture that was very different actually from the U.S. and Europe. I find it super interesting. I personally love history so maybe that’s why I was keen to see more of China. I don’t think people should be so scared. At the same time, it’s really not easy.
So I think the best from my perspective is for people to consider living 1-2 years in China. It’s easier to learn the language or to work with local Chinese companies or work for foreign companies with operations in China. Because once you live there, you learn to be there first. I mean that’s also something I’ve seen: some people cannot take it. So these people leave in the first 3-6 months. But if you really like it and feel connected and in sync then you will stay for more.
It’s probably easier to take baby steps living there and learning a bit of the basics of everything so that when you are ready to do have your own business or launch a business or to do something entrepreneurial, you have this experience. That would be my advice and that’s certainly what I did working first for another company for the first two years, making it much easier when it was time for me to start stuff in China. I had my network, I knew people, I knew some of the basic mistakes. It’s so easy to make mistakes in China. Even if you are very well connected.
Hans Tung: In China, Beijing, Shanghai and Shenzhen are all quite different. So you almost have to spend time in more than one city to get to know and operate in the real China.
Bertrand Schmitt: That’s true. But for myself, I spent a year in Shanghai. Surprisingly I was actually happy to go back to Beijing. I felt from my perspective Beijing was more tech-oriented. Shanghai might be easier for international people, for expats to live. But at the end of the day I’m not just looking at easy, I’m looking at what’s efficient especially for the business. I felt that Beijing was a better place. Obviously there are great companies in Shanghai and the Shanghai area. I think especially for expats it’s maybe too easy to have too much of an international viewpoint of China from Shanghai than some other markets.
Hans Tung: A lot of people in the West call Shanghai or even Shenzhen as more of the Silicon Valley of the East. What’s your view? Which city in your mind resembles Silicon Valley the most in China?
Bertrand Schmitt: Hardware, of course Shenzhen. But for software, for me, it’s still more Beijing. In terms of opportunities, I believe 50% of VC investments are going to Beijing in China. And when I see the companies you have close by from Baidu to Lenovo to a lot of Telcos obviously. There are also the universities. I still feel that it’s the center. So me as a foreigner, it might not feel like the easiest choice but I think in Beijing you have probably more opportunity to find the people you need if you are ready to go pretty local. If your goal is just to work with foreigners it’s probably a different story.
Hans Tung: Shanghai always reminds me of New York. The New York of China because it’s very global, very modern.
Bertrand Schmitt: It’s a great city to live. In terms of lifestyle, I would probably prefer Shanghai.
Zara Zhang: We’ll go into the final part of the podcast which is a round of quick fire questions. First one is who is the entrepreneur you admire the most and why?
Bertrand Schmitt: I’m not sure there is one entrepreneur I admire the most but I’ve always been impressed obviously by what Steve Jobs has achieved, Bill Gates has achieved. But if I go back, one of the ones that I’ve been very impressed by is actually Benjamin Franklin in the U.S. For me it’s so amazing to see someone who is a scientist, a diplomat, an entrepreneur, an inventor. He’s very special to me and obviously coming from UPenn that he founded, it’s also another angle but I’m very impressed by what he’s done. When you think 250 years ago what the world was, to achieve so much is very impressive.
Hans Tung: I thought you’d pick someone from the Renaissance period or scientific revolution.
Bertrand Schmitt: Benjamin Franklin is a scientific revolution. He’s the guy who understood how to protect yourself against thunder. He’s the guy who discovered during his trips to Europe the different currents – some were warmer than others and therefore you could go faster if you follow the one current. This is pretty impressive how diverse this is. For me, this is something that’s different from today. People are so specialized and maybe there is no choice but to me, it’s very impressive.
Zara Zhang: How many apps do you have on your phone?
Bertrand Schmitt: I have more than 500 on my iPhone and I delete still on a regular basis.
Zara Zhang: What do you do for fun?
Bertrand Schmitt: I just got a baby girl. Four months ago so I’m very focused. She’s my first one.
Hans Tung: You’ve been working very hard.
Bertrand Schmitt: Yeah I’ve been working. I really hope she will have these 3 perspectives: Asian, European and American angle. We speak to her in Mandarin, French and English.
Hans Tung: Where was she born?
Bertrand Schmitt: Here. In San Francisco.
Zara Zhang: What’s something you read recently that you recommend?
Bertrand Schmitt: Good question. I really loved this book called Sapiens. I didn’t like the second one as much but the first one was pretty good. And also one that was very good was The Better Angels of Our Nature. For me it’s so huge but one of the most interesting books because it’s challenging a lot of questions and things people take for granted. We sell a lot of data. Sometimes we have these discussions but what happened we sell data and I think we should not work this way anymore. And I’m so impressed by what he wrote. I’m now starting one of Pinker’s newest books.
Zara Zhang: Well thank you so much for your time.
Zara Zhang: well thank you so much for your time.
Hans Tung: I really enjoyed it.
Bertrand Schmitt: Thank you. My pleasure. Thank you for inviting me.
Hans Tung: Thank you for coming.
Hans Tung: Thanks for listening to this episode of 996. By the way, we also produce a weekly e-mail newsletter in English also called 996 which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.GGVC.com.
Zara Zhang: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer internet, e-commerce, frontier tech and enterprise. GGV has invested in over 280 companies with 29 IPOs and 22 unicorns.
Hans Tung: Portfolio companies including Airbnb, Alibaba, Ctrip, Didi, Domo, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at GGVC.com.
Zara Zhang: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@GGVC.com. This podcast is co-produced by our friend and business partner Kaiser Kuo, the host of the wonderful Sinica Podcast. It covers China’s economic, political and cultural issues.
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