China leads the world in internet technology - AVCJ Forum

Koo has firsthand experience of the evolution of China’s internet industry: Youku went public in the US in 2010, acquired Tudou two years later – the first merger between two market leaders in the industry – and was privatized by Alibaba Group in 2016. He left his position with Alibaba’s entertainment division last year and now serves as chairman of Heyi Holdings, the investment entity that incubated Youku in 2006.

Speaking at the AVCJ China Forum to Ravi Thakran, chairman and managing partner of L Catterton Asia, Koo said he did not expect to see any new Alibaba-style platforms emerge in China over the next few years. Rather, the development of the industry will be shaped by established internet companies becoming global leaders in areas like payments and e-commerce while independent investors pursue opportunities in high-growth niches.

For Heyi, the focus is on education and healthcare. “Within education, you are starting to see some unicorns coming out, but these are the only two sectors that have not yet been converted to digitization,” Koo said. Artificial intelligence will play a significant role in this evolution, with Koo noting that the size of the data pool in China – and fewer privacy-related restrictions on its use – serves to differentiate the market from the US.

Koo added that there are still a lot of opportunities in specific verticals within media and entertainment as internet companies seek to acquire content that complements their existing businesses. He recalled a conversation three years ago with Alibaba founder Jack Ma in which they mapped out the convergence of media and e-commerce. “It is happening in different formats at different speeds,” Koo said. “But essentially people want to consume content and buy what they like.”

This convergence was the driving factor behind Alibaba’s acquisition of Youku Tudou. Asked in 2015 for a snapshot of Alibaba's entertainment business three years hence, Joe Tsai, the company’s vice chairman, described a world in which users engage with Alibaba 24-7: viewing shorter, user-generated content on their mobile devices and computer screens; and consuming premium content in their big screen TVs.

This commercial logic has since taken Alibaba into the movie segment, with the entertainment division serving as an umbrella entity for interests ranging from Alibaba Pictures to Youku Tudou to online browser UCWeb. The company wants to create more points of contact with users and gain a better understanding of consumption patterns to target its core e-commerce offering more effectively.

No business – online or offline – can hide from the changing commercial reality. L Catterton was formed in 2016 through the merger of L Capital Asia, a GP backed by luxury goods conglomerate LVMH, and consumer-focused buyout firm Catterton. Thakran worked for LVMH before moving into private equity and he noted that resistance to e-commerce among traditional retailers is not uncommon.

“When I made a statement that we should get married to Amazon and Alibaba I was reprimanded in Paris, they didn’t want that,” Thakran said. “Everyone will have to lose that mentality.”

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