Last month, Netflix’s stock price soared on rumors of meetings in China. People got pretty excited about the potential market for “Netflix China”.
Meanwhile, “Uber China” is continuing to take body blows. Their gigantic Chinese competitors are merging. And the government is raiding their offices. I detailed this in How to Save Uber in China (part 1).
Uber China has 5 important lessons for Netflix.
1. Don’t underestimate the speed of Chinese competitors – and their willingness to sacrifice.
I think Uber is still stunned at the speed of their local competitors Kuaidi and Didi. While Uber is still offering private car services in a handful of cities, Kuaidi and Didi have expanded their taxi hailing to +350 cities.
Kuaidi-Didi also burned $600M in a price war in just 6 months in 2014. That’s pretty scary. Chinese companies are often willing to sacrifice everything to win.
2. Don’t disrupt State capitalism.
Transportation and media are both deep in State capitalism. The government is both policeman and player. You can’t avoid this. And you absolutely do not want to enter as a disruptor. Forget all thoughts of Joseph Schumpeter. Work with the State as a problem solver. Kuaidi and Didi did this very effectively from before their launch. Uber tried to avoid the politics and ended up avoiding >95% of the market.
3. Have the right partner – which is probably not Alibaba.
For Netflix, basically forget about competing independently. Have a partner from day one. Not just for licensure issues. But also for getting distribution, operational speed and scale.Uber lacked a China operating platform and that made them slow on the ground. They really needed a partner.
And don’t get all enamored with Alibaba. They have a million investments and an investment is not the same as a partnership. Plus it’s too hard to date the prettiest girl in school. Go for tangible operational help instead. Check out the NBA’s recent deal with Tencent as an example.
4. Don’t go up against Alibaba AND Tencent.
For Uber, competitor Kuaidi is backed by Alibaba, which has 34,000 employees and a $200b market cap. And competitor Didi is backed by Tencent, which has over 200M Chinese using its services every hour of the day.
To go against either of them would be very daring. Uber went against both, which was simply crazy. To some degree, these two companies are the Chinese internet ecosystem. Figure out how to avoid competing with these companies.
5. Have a tangible advantage as a foreigner – before you enter.
Who is foreign and who is Chinese can matter. Who is private and who is the SOE can also matter. Rules and enforcement can be very different. If you are the foreigner, you need a tangible advantage before you enter.
This can be a powerful brand, foreign customers, a unique technology, etc. For Netflix, this is not their business model. It is their existing content and their ability to create high quality content (a big problem in China right now). Uber really didn’t have any advantages in China.
If you don’t have a big tangible advantage, think twice about going to China. Never compete in China based on being smart or hard-working.
