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When biz model innovation comes full circle

By He Wei | China Daily | Updated: 2019-03-11 09:38

Visitors to the Light of the Internet Expo, part of the World Internet Conference, try a wearable musical device using virtual reality technology. [Photo by Zhu Xingxin/China Daily]

In theory, innovation, in the context of business, shouldn't be synonymous with simply coming up with new business models. But that has proven to be the de facto driver fueling the success of China's thriving internet sector.

With a string of layoff plans being announced by some of the big-name digital firms of late, reflective calls are mounting for the country to make more hardcore technological breakthroughs on top of a variety of novel business innovations.

To be fair, tech giants also assured there will be major recruitment drives and no further layoffs this year. Be that as it may.

China's creation of some of the world's best-known tech-world abbreviations like BAT - it is short for Baidu, Alibaba and Tencent - can be pinned to the power of the internet. BAT have overhauled traditional commercial business models by expanding new channels and significantly lowering costs, from marketing and distribution to sales.

Even from an investor's point of view, startups featuring business model innovation tend to attract more agreeable investees. Compared with thorny technical jargon, business model innovation has easy-to-comprehend story lines, lower initial capital input, and relatively shorter time to achieve economies of scale, which means quicker financial returns.

But such an approach is close to reaching its ceiling, I'd argue. For one, the downward pressure of the macroeconomy, the consequent capital shortage as well as the prohibitive cost of acquiring a new user in a largely saturated market mean growth is harder to sustain, let alone accelerate.

The limitations are even more obvious when judging its nature: business model innovations normally thrive on the local market context, meaning they are hardly transferable to a different market; they have shorter life cycles; and because of lower technical threshold, they bear higher risks of being duplicated by others.

A genuinely healthy enterprise is one that can thrive without going public. This is clearly not the case with car ride-and bicycle-sharing firm Didi, which banks largely on cash-burning campaigns to dominate the market but fails to chart a sustainable profitability path.

Industry observers are thus urging "return to rationality" in the internet sector, which implies a shift from the pursuit of speed and market domination to value creation and organic growth.

National guidelines have also underlined the importance of hardcore technological breakthroughs.

For instance, companies specializing in industries such as information technology, high-end manufacturing, new materials, new energy, environmental protection and biomedicine will be given priority on the much-anticipated science and technology innovation board, according to regulations released in January.

That also explains why internet-based companies are sparing no efforts in delving into more fundamental technologies, from hosting data centers, setting up semiconductor arms, to backing pure-play AI firms. They need technologies to keep their business model innovations in tune with the times.

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