Why is starting a business and investing becoming increasingly difficult?

Since last year, there has been a prevailing sentiment in the startup and investment communities that starting a business is becoming increasingly difficult. Although there are frequent "small trends," "big opportunities" are becoming fewer and fewer. The argument that the mobile internet has entered its "second half" is rampant. So what changes have actually occurred in the external environment? Where will new opportunities emerge?

By Wang Xiaoyan

Source / Xiaoyan Says (ID: xiaoyan_tech)

01

Business changes

Whether in traditional or internet industries, business models can be essentially divided into two categories: channel models and brand models. In the internet industry, these correspond to platforms and intellectual property (IP).The core competitiveness of the channel model lies in having a comprehensive network of channels that can reach users, while the core competitiveness of the brand model lies in having a powerful IP that can occupy users' minds and operate across all platforms. Here, users can be either B-end or C-end users.

In the early days of the internet, almost all business and traffic was offline. Then the internet emerged, creating a new channel for users to connect online.This route was once undeveloped and possesses strong network effects and decreasing marginal costs, making it easy to achieve exponential growth and eventually a monopoly.This is why venture capitalists like to invest in the internet industry.The value chain of the internet and the industrial chain of traditional industries are distinct, making it difficult for traditional industries to successfully transform. This has led to the notion that the internet "disrupts" traditional industries.

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So what changes are happening now? Many people say that "the online traffic dividend has disappeared" because the online channel has formed a new monopoly after several years of development. New applications now have to "steal" traffic from those established platforms.

So everyone can think about it.Why are shared bikes, shared power banks, and mini KTVs emerging at this time?Because people discoveredAs the competition for online traffic becomes increasingly expensive, people are starting to turn their attention to fragmented offline scenarios.There are still many untapped "blue ocean" opportunities for monetizing traffic within this market, and the cost of acquiring this traffic is not higher than online (although it has quickly become a red ocean). WeChat's launch of mini programs at this point in time is based on this logic: connecting fragmented offline traffic.

02

Current predicament

According to economic principles, productivity determines production relations.Therefore, the development of each major wave inevitably begins with the maturity of underlying technologies, followed by the emergence of new basic hardware platforms, and finally, the greatest opportunities come from the innovation of business models built upon them. At the application innovation level, platform-level applications will emerge first, such as large connectors like WeChat, followed by core applications, such as Didi and Meituan, which address basic needs and high-frequency applications like Didi and Meituan, and then various vertical applications will appear.Opportunities in vertical applications will continue to emerge, but the chances of creating a super unicorn like before are becoming increasingly rare.Inke, a platform with a large user base, has been sold off. At this point, it's not easy to create a new, independent traffic platform; this reflects the fragmentation of distribution channels. With the rise of the post-90s and post-95s consumer groups, their values and interests are becoming increasingly niche and personalized. It's becoming increasingly difficult to find mainstream celebrities and brands like before. Consumers' attention is drawn to different internet celebrities or niche brands with a distinct style; this reflects the fragmentation of brands and IPs.

In the past, the investment logic for the Internet was based on two points: exponential growth and the formation of a monopoly.If you're looking for offline traffic opportunities, whether it's shared bikes, power banks, or mini KTVs, it all depends on the number of offline assets deployed and their turnover rate. Both of these have limits, making it difficult to achieve exponential growth. This differs from the models of Didi, Uber, and Airbnb, which connect idle resources through the network, where the supply already exists. This model requires constantly deploying new assets to increase supply. Most importantly, the deployment process requires paying high entry fees to channels, a cost that Didi's model avoids. Essentially, this is because the offline channels that directly reach users are controlled by others; to utilize their channels and traffic, you have to pay "channel fees." The rapid spread of shared bikes is due to the temporary lack of parking fees. However, if future payments to the government for "rights-of-way" or restrictions on parking areas are required, these costs will still exist. Ultimately, internet monopolies form through two paths: one is raising massive amounts of money and burning through cash to exhaust competitors; the other is buying out competitors through acquisitions and mergers. For the reasons analyzed above, achieving a monopoly has become more difficult under the current circumstances; instead, regional monopolies are more likely to form.

Based on the above two analyses, on the one hand, opportunities for large platforms and big IPs have decreased, and on the other hand, the process of forming a monopoly has become more difficult. This is why starting a business and investing are becoming increasingly difficult these days.

03

Poetry and distant places

When we analyze the driving forces behind business, we find that entrepreneurial opportunities essentially exist in two areas: saving time and killing time. When we digitize vast amounts of offline data, we use various intelligent applications to help people reduce costs and improve efficiency—this is saving time. Conversely, when people have a significant amount of free time, they need various interesting cultural and creative content to satisfy their spiritual needs—this is killing time.

Many people ask if there are still entrepreneurial opportunities under the "pressure" of the three giants, BAT (Baidu, Alibaba, Tencent). The answer is definitely yes. Let's look at how Toutiao (ByteDance's news aggregator) rose to prominence. Since the explosive growth of self-media content on WeChat, users have been fragmented, scattered across various public accounts. Toutiao has captured this content—content from Tencent's ecosystem that Baidu lacks. This is an analysis from a content perspective. From a format perspective, Baidu's information acquisition method used to be a "people searching for information" search model, while Toutiao adopts an "information finding people" feed model. Its powerful support is based on intelligent algorithms using machine learning, ultimately making feed advertising a more suitable advertising format for the mobile internet era. From a value perspective, in the PC era, the largest traffic portal on the internet was the search engine. In the mobile internet era, however, traffic portals are divided among individual apps on smartphones. Each app represents a specific user need. In the mobile internet era, Alibaba and Tencent have their own account systems (Alibaba has Taobao IDs, Tencent has WeChat IDs), and Toutiao also has one, but Baidu does not. Therefore, Baidu's portal value and data value have significantly decreased. As an aside, Baidu's market capitalization today is about one-sixth of Alibaba's and Tencent's. This shows that the monopolies of tech giants are not unbreakable; the key is finding the fulcrum to leverage them.

Let's examine the value that artificial intelligence will bring. Why is it so exciting? Besides automating knowledge work, it can also create new traffic entry points and business models. As speech recognition and semantic understanding technologies mature, tech giants are investing heavily in voice assistants: Apple's Siri, Google's Assistant, Microsoft's Cortana, Amazon's Alexa, and domestic giants like BAT (Baidu, Alibaba, Tencent) and iFlytek are all investing in this area, creating a dazzling array of options. The reason for this is that voice is the next-generation entry point for human-computer interaction. Language is the most common form of expression in human communication. Once machines can understand human language, they can smoothly execute commands or call other services to meet human needs on future smart terminals. Thus, voice becomes the largest traffic entry point, or the primary application, with all other applications secondary to it. The value potential of this entry point is enormous. Regarding e-commerce traffic entry points, initially, people shopped directly on Taobao and Tmall. Later, shopping guide platforms like Meilishuo and Mogujie gained popularity among the post-90s generation, becoming a traffic-driving link embedded in the e-commerce decision-making chain. Further development will diversify e-commerce entry points. Once image and voice recognition reach a certain level of sophistication, whether online or offline, people can directly access purchase links through image, video, or voice search for anything they like—convenient, fast, and readily available. Now, let's discuss the future of social interaction. When user profiles become accurate and multi-dimensional, artificial intelligence will match us with the most suitable social partners, allowing us to quickly find people who can help us when we encounter problems.

Of course, we can't see these applications implemented immediately. Historically, every wave of technological revolution started in the B2B sector, which is the current stage of AI development, before moving to the B2C sector. The enterprise value created in the B2C stage far surpasses that in the B2B sector. So, does it end here? Actually, this is far from enough to describe the true future.

The greatest value the internet has brought to people over the past few decades has been connecting the flow of information, logistics, and capital. The greatest value of the future society lies in connecting and rationally allocating industrial resources. Currently, over 70% of industrial resources have not yet been digitized. Only when these resources are data-driven can artificial intelligence unleash its full power, intelligently matching supply and demand and significantly improving resource allocation efficiency. We can imagine a future where all industries, including finance, healthcare, education, security, and transportation, have such an intelligent platform. The value of such an industrial resource allocation platform would far surpass that of today's BAT (Baidu, Alibaba, Tencent). For example, in the transportation industry, once autonomous driving is realized, the entire country's transportation system will need such a platform for intelligent allocation and on-demand supply. Who will be this platform? Will it be Didi? In fact, judging from Didi's strategic intentions released this year, it does have such ambitions. If it is indeed Didi, then its current value is still underestimated.

Of course, this path will be incredibly difficult to achieve. As analyzed above, after a period of great prosperity and development entirely online, tech entrepreneurship has begun to penetrate offline, with supply chains and channels becoming crucial choke points. In the future, it will also need to develop in depth within industries. Just think, how many industry data and resources are willing to be shared? This is taking away other people's interests and starting construction on their territory! Therefore, entrepreneurship has entered a "deep water zone."

The present is difficult, the future is bright, and the path in between is unclear. But it is precisely because of that poetry and distant horizon that the future is worth looking forward to.