The biggest news on the tech startup radar is of course Facebook’s enormous acquisition of mobile photo sharing app, Instagram for US$1 Billion in cash and stock.
It doesn’t really surprise me that Facebook bought Instagram because I heard Facebook’s CTO Bret Taylor at Mobile World Congress reiterate that the future of Facebook is in mobile.
Instagram’s exit is amazing given that the company is only made up of a few people and has amassed a user base of 30 million plus continues to be one of the most downloaded photo apps ever.
So now like the herd effect of China following America, many VC’s must be salivating over the best Instagram clone startups in China. But hold on a second, one of China’s biggest tech companies, Tencent already launched their own clone of Instagram called Q Pai in June last year.
China’s tech startup ecosystem has often been criticized for not being a fair play market for small start-ups that have to struggle against giants like Tencent, Baidu or RenRen. We have often discussed the difference between American and Chinese start-up ecosystem. American start-ups often have a chance to flourish, grow and then have a strong exit; but in China, the economics for big companies makes it easier to simply build it themselves.
If we compare Facebook and Tencent, both are dominant tech companies. Tencent has a market cap of HKD$406 Billion and Facebook is hovering around the US$100 Billion valuation mark, pre-IPO. If both companies have the money, then why doesn’t Facebook just build their own Instagram-like service in-house like Tencent?
In America most acquisitions by Google and Facebook are often made for the startup team, technology or users or all of them. In such a fiercely competitive market with expensive talent, it makes sense to save time and potentially costs to buy rather than make. In China, unfortunately team, technology and users are less valued. Why? For the case of Tencent, they are already a giant and can afford to hire anyone and everyone or shift a whole team to make something. For technology, intellectual property laws are so lax that anyone can take and use someone else’s technology. And users? Tencent already controls 717 Million active QQ users and 100 Million Weixin users. So it’s no wonder China prefers to make and America prefers to buy.
Perhaps the one advantage for start-ups in China to compete against big tech companies is if they are totally original and not a clone of anything. Of course you must be wondering if non-clones exist in China. In fact they do but they are rare. Take Douban for example. It is one of China’s most original and successful social networks. As an interest-based graph network around books, film and music, Douban has around 53 Million registered users. Growing at such a fast speed, why didn’t Tencent, Baidu or RenRen who already had the money and the team to clone and crush it do it? The reason is probably Douban was so original that they didn’t know what to think of it. So for Chinese start-ups, being original and being fast is something to be confident in.