Sparklabs Global Ventures' Technology and Internet Market Bi
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SparkLabs Global Ventures’ Technology and Internet Market Bi-Monthly Review February 23, 2015 Bi-monthly Highlights Global Trends • The Payments Industry: The Trends Creating New Winners And Losers In The Card-Processing Ecosystem The payments industry had a huge year in 2014 and it's showing no sign of slowing down. On the one hand tech giants like Amazon and Apple released new products that affirmed their long-term payments ambitions (Apple Pay and Amazon Local Register). On the other hand startups such as Stripe and ShopKeep continued to carve out market share, challenging older players like PayPal and VeriFone. Three trends will shape the payment-card- processing ecosystem from 2015 onward: the EMV security migration, rapid development of new payment technologies, and the massive card-fraud problem in the US. While none of these developments will completely upend the incumbent system for processing payments, each will disrupt key players. The mobile point-of-sale (mPOS) is going to have a massive impact on the payments-hardware and payments-software industry. By 2019, we forecast that nearly 80% of US retailers will have implemented a mPOS device. The move to mPOS will continue to put pressure on hardware providers that compete directly against mPOS devices, as well as ISOs that sell legacy devices to merchants. In addition, the ecosystem for credit- and debit-card processing involves a complicated set of players interacting to process every transaction. Five types of players are involved: acquirers/processors, issuers, card networks, gateway providers, and independent sales organizations (ISOs). To process a typical transaction, three steps must occur: authorizing, batching, and funding. Each participant in this process takes a fee off of the total volume of a transaction. The remainder is deposited in a merchant's account. • The 'connected car' is creating a massive new business opportunity for auto, tech, and telecom companies The connected car is equipped with internet connections and software that allow people to stream music, look up movie times, be alerted of traffic and weather conditions, and even power driving-assistance services such as self- parking. By 2020, BI Intelligence estimates that 75% of cars shipped globally will be built with the necessary hardware to connect to the Internet. The connected-car market is growing at a five-year compound annual growth rate of 45% — 10 times as fast as the overall car market. We expect that 75% of the estimated 92 million cars shipped globally in 2020 will be built with internet-connection hardware. But of the 220 million total connected cars on the road globally in 2020, we estimate consumers will activate connected services in only 88 million of these vehicles. Connected-car vehicle prices are out of reach for most car buyers, but they will drop significantly in the next few years. The high average selling price of $55,000 is driven by the fact that connected-car shipments tilt toward the luxury category. In addition, connected-car technology is now split between approaches that put the Internet connection in the car and those relying on a secondary device. Embedded connections don't require a phone's data plan to operate, and consumers and carmakers gain access to a wider variety of features and data. Embedded connections will win, in part because they offer two clear advantages to carmakers. They allow auto companies to collect data on cars' performance and send updates and patches to cars remotely, avoiding recalls related to the car's software. SparkLabs Global Ventures (http://www.sparklabsglobal.com) is a global seed-stage fund with partners in Silicon Valley, Chicago, London Tel Aviv, Singapore, and Seoul. 1 SparkLabs Global Ventures’ Technology and Internet Market Bi-Monthly Review February 23, 2015 Asia Pacific China • Alibaba pushes its mobile OS with US$590M investment in phone maker Meizu China’s ecommerce titan Alibaba announced a US$590 million investment in phone maker Meizu. It gives Alibaba a “minority” but undisclosed stake in the smartphone company. Alibaba says it and Meizu will “collaborate at both strategic and business levels” in areas such as “ecommerce, mobile internet, mobile operating system, and data analysis.” In addition, Alibaba’s Tmall and Taobao estores, which collectively have 334 million active shoppers, will play host to Meizu’s online stores. That mention of a mobile operating system refers to Alibaba’s YunOS, which first launched in 2011 on a variety of phones from third-party brands. However, Alibaba’s OS has struggled to take off as a popular alternative to Android. In October 2014, Alibaba and Meizu tied up for the first time to make a special edition of the Meizu MX4 than runs Alibaba’s OS rather than Android. That phone sells for RMB 1,799 (US$295) in China. Alibaba’s Meizu investment comes after other major Chinese web companies have aligned themselves with phone companies, such as Qihoo’s US$400 million investment in Coolpad, and Tencent’s ongoing partnership with Xiaomi. Meizu was the first Chinese startup phone maker to make international headlines in the early days of smartphones, but its star soon faded as arch-rival Xiaomi grew quickly to become a new Chinese tech giant. Meizu is now battling for attention amidst an array of upstart phone brands in China, such as Oppo and OnePlus. • Chinese education startup 17zuoye raises US$100M series D from Lei Jun, Yuri Milner, etc. Online education is booming in China. On the eve of the Chinese new year, online education platform 17zuoye announced that it has raised a series D round worth US$100 million. This brings the company’s total valuation to US$600 million. The round was led by H Capital (which also invested in 17zuoye’s series C), and other investors included Temasek, Yuri Milner/DST, and Lei Jun’s Shunwei (which has invested in every 17zuoye round starting with its series A). 17zuoye is an online learning platform for students K-12, as well as teachers and parents. The name means “homework together” in Chinese, and the site aims to serve as a nexus for all three groups to facilitate the educational experience, focusing on English and Math classes. For example, for students one service it offers is an automated system that allows them to record English sentences and get instant feedback on pronunciation. Teachers can then listen to their students’ recordings at any time. Parents can even get real-time reports on their kids via WeChat. And that’s just the tip of the iceberg. Online education is a hot market in China right now, but 17zuoye, which was founded in 2007, has shown especially explosive growth. Two years ago the site had just over 1 million students; now it has more than 7 million. In July of last year alone, for example, the site added more than 130,000 students to its rolls. • Chinese mobile laundry service Bear Butler nabs US$960K angel investment Chinese O2O startup Bear Butler has raised US$960,000 in angel funding to continue its dry-cleaning dreams. The new cash will be used to optimize the startup’s workflow and build out a management team. Bear Butler is a mobile app and Taobao shop that allows users to book and pay for laundry service. Bear Butler takes charge of pretty much everything else: they’ll send someone to pick up the laundry at your place, wash it, and then drop it back off clean so that you can forget about the entire laundry process. Of course, that sort of service does come at a cost: RMB 9 (US$1.44) per article of clothing and an additional RMB 50 (US$8) for pickup/dropoff. Trickier items of clothing and bedding have their own prices. Bear Butler is way more expensive than a laundromat, and it wouldn’t take many loads of clothing for it to be more expensive than buying your own washing machine, too. But the service could well catch on with China’s upper-class young urbanites, who have cash to burn, a preference for trendy O2O services, and a desire for convenience even at significant extra cost. • Shopline nets US$1.2M in funding from Ardent Capital and 500 Startups, sets sights on Southeast Asia Shopline, the Hong Kong-based startup that offers online tools for e-commerce vendors, announced that it has closed a US$1.2 million seed funding round. Investors include 500 Startups, Ardent Capital, SXE Ventures, East Ventures, and COENT Venture Partners. Co-founder and CEO Raymond Yip says Shopline will use the funding to ramp up staffing and marketing. Once a team of three, the company has now increased its employee count to nine, and expects to get bigger as it targets expansion in Southeast Asia. Shopline is an online platform that helps e- commerce merchants sell goods directly to consumers on standalone websites, as opposed to an eBay-esque marketplace. Similar to Shopify, the Ottowa-based startup that’s reportedly valued at over US$1 billion dollars, Shopline charges vendors a monthly subscription fee of about US$16 for access to a domain name and a customizable admin panel. In addition to Shopify, Shopline faces a handful of other Asian competitors. Taiwan’s 91mai, which is founded by former team behind Yahoo Taiwan’s ecommerce channel, offers a similar product for SparkLabs Global Ventures (http://www.sparklabsglobal.com) is a global seed-stage fund with partners in Silicon Valley, Chicago, London Tel Aviv, Singapore, and Seoul. 2 SparkLabs Global Ventures’ Technology and Internet Market Bi-Monthly Review February 23, 2015 ecommerce vendors, but through native apps rather than mobile websites.