When Yahoo was sold to Verizon for $4.8 billion, its booby prize was its remaining shares in Alibaba. When Uber lost out to Didi Chuxing recently, its compensation prize is a 17.7% stake in Didi, a ride-hailing service started 3 years after Uber which has a 90% market share of the Chinese market. As the Economist (August 6th issue) explains, "the usual story about the isolated Chinese market is that foreign firms are either blocked altogether or hobbled by regulators. The Chinese government has indeed restricted competition in some areas, which is upheld as the raison d'être for China's having subpar clones of Western firms, such as Baidu in search or Renren, an ailing knockoff of Facebook." 

Uber, The Economist points out, was out-competed. "Globally, Uber arranged its billionth ride at the end of 2015, after 5 years in business; Didi arranged 1.4 billion rides in 2015 alone, just in China. Uber struggled to raise its market share in China above 10%. Didi understood the local culture, integrated better with social-media platforms and got taxi drivers onside by incorporating them into its app from the beginning. In outlawing subsidies (the coup-de-gras for Uber) the regulators called time on a fight the American firm had already lost."

The Economist goes on to describe the extraordinary success of WeChat, the Chinese version of Facebook's WhatsApp. WeChat is called the best riposte to the condescending, widely held belief that Chinese Internet firms are merely imitators of Western ones, and cannot innovate themselves. "There is nothing outside of China that offers WeChat's combination of features. It has 700 million monthly users, and combines messaging, voice calls, browsing, gaming and payments. It can be used for everything from paying parking tickets to booking a hospital appointment, ordering food or paying for a cup of coffee. WeChat is not so much an app as an entire mobile operating system, and accounts for more than one-third of all time spent online by Chinese mobile users." HSBC values the app at over $80 billion. "To Chinese users, Western apps look hopelessly backward. With revenue from payments, virtual goods and gaming, Chinese Internet firms are much less dependent on online ads than Western rivals."

 

The Economist goes on to cite the unique attributes of Didi (such as bus hailing services) and such other Chinese 

Internet firms as Alibaba, Sina Weibo, etc. 

 

 

My readers have read many times that the killer app, the Holy Grail of Internet services is an entire mobile operating system available for e-commerce, which provides buyers and sellers the ability to trade in capital goods, supported by all the capabilities necessary to engage in the $85 trillion in global trade flows expected by 2025. Neither a Chinese or Western Internet service provider has created such a system. 

No one should be surprised that the Chinese use their extensive knowledge of global trade and e-commerce to create just such a system before condescending Westerners do. Sun Tzu was not a fan of overconfidence in generals. For a more Western example of the practical effects of overconfidence on battle, we need look no further than Austerlitz, the Battle of the Three Emperors, and the overconfidence of Alexander I despite the warnings of his wizened and older General Mikhail Illarionovich Kutuzov.