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TikTok owner ByteDance’s long-awaited chat app is here

In WeChat -dominated China, there’s no shortage of challengers out there claiming to create an alternative social experience. The latest creation comes from ByteDance, the world’s most valuable startup and the operator behind TikTok, the video app that has consistently topped the iOS App Store over the last few quarters.

The new offer is called Feiliao (飞聊), or Flipchat in English, a hybrid of an instant messenger plus interest-based forums, and it’s currently available for both iOS and Android. It arrived only four months after Bytedance unveiled its video-focused chatting app Duoshan at a buzzy press event.

Screenshots of Feiliao / Image source: Feiliao

Some are already calling Feiliao a WeChat challenger, but a closer look shows it’s targeting a more niche need. WeChat, in its own right, is the go-to place for daily communication in addition to facilitating payments, car-hailing, food delivery and other forms of convenience.

Feiliao, which literally translates to ‘fly chat’, encourages users to create forums and chat groups centered around their penchants and hobbies. As its app description writes:

Feiliao is an interest-based social app. Here you will find the familiar [features of] chats and video calls. In addition, you will discover new friends and share what’s fun; as well as share your daily life on your feed and interact with close friends.

Feiliao “is an open social product,” said ByteDance in a statement provided to TechCrunch. “We hope Feiliao will connect people of the same interests, making people’s life more diverse and interesting.”

It’s unclear what Feiliao means by claiming to be ‘open’, but one door is already shut. As expected, there’s no direct way to transfer people’s WeChat profiles and friend connections to Feiliao, and there’s no option to log in via the Tencent app. As of Monday morning, links to Feiliao can’t be opened on WeChat, which recently crossed 1.1 billion monthly active users.

On the other side, Alibaba, Tencent’s long-time nemesis, is enabling Feiliao’s payments function through the Alipay digital wallet. Alibaba has also partnered with Bytedance elsewhere, most notably on TikTok’s Chinese version Douyin where certain users can sell goods via Taobao stores.

In all, Flipchat is more reminiscent of another blossoming social app — Tencent-backed Jike — than WeChat. Jike (pronounced ‘gee-keh’) lets people discover content and connect with each other based on various topics, making it one of the closest counterparts to Reddit in China.

Jike’s CEO Wa Nen has taken noticed of Feiliao, commenting with the 👌 emoji on his Jike feed, saying no more.

Screenshot of Jike CEO Wa Ren commenting on Feiliao

“I think [Feiliao] is a product anchored in ‘communities’, such as groups for hobbies, key opinion leaders/celebrities, people from the same city, and alumni,” a product manager for a Chinese enterprise software startup told TechCrunch after trying out the app.

Though Feiliao isn’t a direct take on WeChat, there’s little doubt that the fight between Bytedance and Tencent has heated up tremendously as the former’s army of apps captures more user attention.

According to a new report published by research firm Questmobile, ByteDance accounted for 11.3 percent of Chinese users’ total time spent on ‘giant apps’ — those that surpassed 100 million MAUs — in March, compared to 8.2 percent a year earlier. The percentage controlled by Tencent was 43.8 percent in March, down from 47.5 percent, while the remaining share, divided between Alibaba, Baidu and others, grew only slightly from 44.3 percent to 44.9 percent over the past year.

Tech stocks slide on US decision to blacklist Huawei and 70 affiliates

The United States has been lobbying for months to prevent its western allies from using Huawei equipment in their 5G deployment, and on Wednesday, Washington made it more difficult for the Chinese telecom titan to churn out those next-gen products.

The U.S. Department of Commerce announced that it will add Huawei and its 70 affiliates to the so-called ‘Entity List,’ a move that will prevent the telecom giant from buying parts and components from U.S. companies without approval from Washington. That confirms reports of the potential ban a day before.

Despite being the largest telecom equipment maker around the world, Huawei relies heavily on its American suppliers, giving the U.S. much leeway to hobble the Chinese firm’s production.

Following the dramatic move, shares of a gauge of Huawei affiliates slumped on Wednesday. Tatfook Technology, which sells to Huawei as well as Ericsson and Bosch, dropped 2.84 percent in Shenzhen in morning trading. New Sea Union Telecom, a supplier to China’s ‘big three’ telecom network operators and Huawei, slid 4.88 percent. Another Huawei key partner Chunxing Precision Mechanical dropped as much as 5.37 percent.

Huawei did not comment directly on the Commerce Department’s blacklist when reached out by TechCrunch, but said it’s “ready and willing to engage with the U.S. government and come up with effective measures to ensure product security.”

“Restricting Huawei from doing business in the U.S. will not make the U.S. more secure or stronger; instead, this will only serve to limit the U.S. to inferior yet more expensive alternatives, leaving the U.S. lagging behind in 5G deployment, and eventually harming the interests of U.S. companies and consumers,” Huawei hit back in the statement.

This view is congruent with some of the harshest criticisms of Washington’s backlash against Huawei. Scholars and industry observers warn that Chinese tech firms have become such an integral part to the global economy that severing ties with Huawei will do ham to 5G advancement worldwide.

In addition, the Chinese company said the U.S.’s “unreasonable restrictions will infringe upon Huawei’s rights and raise other serious legal issues,” though it did not spell out what those rights and legal concerns are.

The announcement dropped on the same day U.S. President Donald Trump declared “a national emergency” over technology supply chain threats from the country’s “foreign adversaries”.

The Commerce Department said it has a reasonable basis to conclude that “Huawei is engaged in activities that are contrary to U.S. national security or foreign policy interest.”

Some of the U.S’s allies including the U.K. are still investigating Huawei’s possible security threat and deciding how close a link they should keep with Huawei, but the Shenzhen-based company has already taken a bold step to give its potential clients some assurance.

Just this Tuesday, Huawei told reporters in London that it’s “willing to sign no-spy agreements with governments, including the U.K. government,” and commit itself to making its equipment “meet the no-spy, no-backdoors standard.”

The U.S.’s tit-for-tat with Huawei also includes the push to arrest the company’s CFO Meng Wanzhou on charges that Huawei did business in Iran in breach of U.S. sanctions.

Huawei launches AI-backed database to target enterprise customers

China’s Huawei is making a serious foray into the enterprise business market after it unveiled a new database management product on Wednesday, putting it in direct competition with entrenched vendors like IBM, Oracle and Microsoft.

The Shenzhen-based company, best known for making smartphones and telecom equipment, claims its newly minted database uses artificial intelligence capabilities to improve tuning performance, a process that traditionally involves human administrators, by over 60 percent.

Called the GaussDB, the database works both locally as well as on public and private clouds. When running on Huawei’s own cloud, GaussDB provides data warehouse services for customers across the board, from the financial, logistics, education to automotive industries.

The database launch was first reported by The Information on Tuesday citing sources saying it is designed by the company’s secretive database research group called Gauss and will initially focus on the Chinese market.

The announcement comes at a time when Huawei’s core telecom business is drawing scrutiny in the West over the company’s alleged ties to the Chinese government. That segment accounted for 40.8 percent of Huawei’s total revenues in 2018, according to financial details released by the privately-held firm.

Huawei’s consumer unit, which is driven by its fast-growing smartphone and device sales, made up almost a half of the company’s annual revenues. Enterprise businesses made up less than a quarter of earnings, but Huawei’s new push into database management is set to add new fuel to the segment.

Meanwhile, at Oracle, more than 900 employees, most of whom worked for its 1,600-staff research and development center in China, were recently let go amid a major company restructuring, multiple media outlets reported earlier this month.

Data provided to TechCrunch by Boss Zhipin offers clues to the layoff: The Chinese recruiting platform has recently seen a surge in newly registered users who work at Oracle China. But the door is still open for new candidates as the American giant is currently recruiting for more than 100 positions through Boss, including many related to cloud computing.

U.S. slams Alibaba and its challenger Pinduoduo for selling fakes

China’s biggest ecommerce company Alibaba was again on the U.S. Trade Representative’s blacklist over suspected counterfeits sold on its popular Taobao marketplace that connects small merchants to consumers.

Nestling with Alibaba on the U.S.’s annual “notorious” list that reviews trading partners’ intellectual property practice is its fast-rising competitor Pinduoduo . Just this week, Pinduoduo founder Colin Huang, a former Google engineer, wrote in his first shareholder letter since listing the company that his startup is now China’s second-biggest ecommerce player by the number of “e-way bills”, or electronic records tracking the movement of goods. That officially unseats JD.com as the runner-up to Alibaba.

This is the third year in a row that Taobao has been called out by the U.S. government over IP theft, despite measures the company claims it has taken to root out fakes, including the arrest of 1,752 suspects and closure of 1,282 manufacturing and distribution centers.

“Although Alibaba has taken some steps to curb the offer and sale of infringing products, right holders, particularly SMEs, continue to report high volumes of infringing products and problems with using takedown procedures,” noted the USTR in its report.

In a statement provided to TechCrunch, Alibaba said it does “not agree with” the USTR’s decision. “Our results and practices have been acknowledged as best-in-class by leading industry associations, brands and SMEs in the United States and around the world. In fact, zero industry associations called for our inclusion in the report this year.”

Pinduoduo is a new addition to the annual blacklist. The Shanghai-based startup has over the course of three years rose to fame among China’s emerging online shoppers in smaller cities and rural regions, thanks to the flurry of super-cheap goods on its platform. While affluent consumers may disdain Pinduodou products’ low quality, price-sensitive users are hooked to bargains even when items are subpar.

“Many of these price-conscious shoppers are reportedly aware of the proliferation of counterfeit products on pinduoduo.com but are nevertheless attracted to the low-priced goods on the platform,” the USTR pointed out, adding that Pinduoduo’s measures to up the ante in anti-piracy technologies failed to fully address the issue.

Pinduoduo, too, rebutted the USTR’s decision. “We do not fully understand why we are listed on the USTR report, and we disagree with the report,” a Pinduoduo spokesperson told TechCrunch. “We will focus our energy to upgrade the e-shopping experience for our users. We have introduced strict penalties for counterfeit merchants, collaborated closely with law enforcement and employed technologies to proactively take down suspicious products.”

The attacks on two of China’s most promising ecommerce businesses came as China and the U.S. are embroiled in on-going trade negotiations, which have seen the Trump administration repeatedly accused China of IP theft. Tmall, which is Alibaba’s online retailer that brings branded goods to shoppers, was immune from the blacklist, and so was Tmall’s direct rival JD.com.

Taobao has spent over a decade trying to revive its old image of an online bazaar teeming with fakes and “shanzhai” items, which are not outright pirated goods but whose names or designs intimate those of legitimate brands. Pinduoduo is now asked to do the same after a few years of growth frenzy. On the one hand, listing publicly in the U.S. subjects the Chinese startup to more scrutiny. On the other, small-town users may soon demand higher quality as their purchasing power improves. And when the countryside market becomes saturated, Pinduoduo will need to more aggressively upgrade its product selection to court the more sophisticated consumers from Chinese megacities.

Douyu, China’s Twitch backed by Tencent, files for a $500M U.S. IPO

Douyu, a Chinese live streaming service focused on video games, has filed with the U.S. Securities and Exchange Commission as it prepares to raise up to $500 million on the NYSE less than a year after its archrival floated on the same stock market.

Wuhan-based Douyu, whose name translates as “fighting fish”, is the second Twitch -like service backed by Tencent to go public in the United States. Its direct competitor Huya, who has a similarly fierce name “tiger’s teeth” and also counts Tencent as a major investor, raised $180 million from its NYSE listing last May.

It’s not surprising for Tencent to hedge its bets in esports streaming, given the giant relies heavily on video games to make money. For example, Tencent can use some of its portfolio companies’ ad slots to get the word out about its new releases. Indeed, Douyu’s filing shows it received a hefty 27.48 million yuan ($4.09 million) in advertising fees from Tencent last year.

As Douyu warns in its prospectus, its alliance with Tencent can be tenuous.

“Tencent may devote resources or attention to the other companies it has an interest in, including our direct or indirect competitors. As a result, we may not fully realize the benefits we expect from the strategic cooperation with Tencent. Failure to realize the intended benefits from the strategic cooperation with Tencent, or potential restrictions on our collaboration with other parties, could materially and adversely affect our business and results of operations.”

But there are nuances in the giant’s ties to China’s top two live streaming services that could mean more affinity between Tencent and Douyu. The social media and gaming behemoth is currently Douyu’s largest shareholder with a 40.1 percent stake owned through its wholly-owned subsidiary Nectarine. Over at Huya, Tencent is the second-largest stakeholder behind YY, the pioneer in China’s live streaming sector that had spun off Huya.

When it comes to the financial terms, the rivaling pair is in a head-on race. In 2018, Douyu doubled its net revenues to $531.5 million. Huya held an edge as it earned $678.3 million in the same period, also doubling the amount from a year ago.

Huya may have learned a few things about monetizing live streaming from 14-year-old YY as it managed to pull in more revenues despite owning a smaller user base. While Douyu claimed 153.5 million monthly active users in the fourth quarter, Huya had 116.6 million.

How the two make money also diverge slightly. In the fourth quarter, 86 percent of Douyu’s revenues originated from virtual items that users tipped to their favorite streaming hosts, with the remaining earnings derived from advertising and more. By contrast, Huya relied almost exclusively on live streaming gifts, which made up 95.3 percent of total revenues.

douyu

Screenshot of a Douyu live streaming session 

As Douyu grows its coffers to spend on content as well as technologies following the impending IPO, competition in China’s live streaming landscape is set to heat up. Just earlier this month, Huya raised $327 million in a secondary offering to invest in content and R&D. Like many other businesses anchored in content, Huya and Douyu depend tremendously on quality creators to keep users loyal. Both have offered sizable checks to live streaming hosts, promising to grow the internet celebrities into bigger stars.

And they’ve extended the battlefield outside China as emerging media forms, most exemplified by short video services Douyin (TikTok’s China version) and Kuaishou, threaten to steal people’s eyeball time away. Both bite-size video apps now enjoy a much bigger user base than their live streaming counterparts.

“We intend to further explore overseas markets to expand our user base through both organic expansion and selective investments,” noted Douyu in its IPO filing.

In a similar move, Huya’s overseas expansion is also well underway. “In addition to our vigorous domestic growth, we have successfully leveraged our unique business model to enter new overseas markets. We believe we are delivering long-term value through strategic investments in overseas markets in 2019 and beyond,” said Huya chief executive Rongjie Dong in the company’s Q4 earnings report.

Hong Kong-based fintech startup Qupital raises $15M Series A to expand in mainland China

Qupital, a fintech startup that bills itself as Hong Kong’s largest trade financing platform for SMEs, has closed a $15 million Series A led by CreditEase FinTech Investment Fund (CEFIF), with participation from returning investors Alibaba Hong Kong Entrepreneurs Fund and MindWorks Ventures, both participants in its seed round. To date, Qupital has raised $17 million, including a seed round two years ago, and will use its latest funding to expand its supply chain financing products, launch in mainland Chinese cities and hire more people for its tech development and risk management teams.

CreditEase, which provides loans and other financial services for SMEs in China, will act as a strategic investor, aiding with Qupital’s geographic expansion. Existing investor Alibaba has already helped Qupital reach small businesses on its platform. Qupital will open branches in Chinese cities including Shanghai, Hangzhou, Guangzhou and Shenzhen, along with setting up a new technology center in the Guangdong-Hong Kong-Macau Greater Bay Area for talent and tech development. In total, it will hire about 100 people for its Hong Kong office this year.

Founded in 2016, Qupital offers lending for SMEs that frequently have cash flow issues because they are in a cycle of waiting for invoices to be paid. Qupital’s loans cover most of the value of an invoice, then matches that with investors and funders who cover the cash with the expectation of a return. The company makes money by charging SMEs a service fee that is a fixed percentage of the total invoice value and then a discount fee, and taking a percentage of net gains made by investors.

Qupital has now processed 8,000 trades, totaling HKD $2 billion in value. It won’t disclose how many SMEs it has worked with, but co-founder and chairman Andy Chan says that number is in the hundreds.

Chan tells TechCrunch that in China, Qupital will not compete directly against traditional financial institutions, because it focuses on financing the Hong Kong business entities of Chinese companies in U.S. and Hong Kong currency, instead of onshore renminbi. It will also target SMEs underserved by traditional lenders, by using alternative data sources to determine their creditworthiness.

In a prepared statement, CEFIF managing director Dennis Cong said “The growing volume of SME and cross-border trading drives a huge demand for alternative financing for SME’s who are underserved in the market and opportunities for investors to earn a decent risk-adjusted return. We look forward to working with Qupital to broaden its source of capital base and create unparalleled investment opportunities for CreditEase.”

Alibaba acquires Israeli VR startup Infinity Augmented Reality

Infinity Augmented Reality, an Israeli virtual reality startup, has been acquired by Alibaba, the companies announced this weekend. The deal’s terms were not disclosed. Alibaba and InfinityAR have had a strategic partnership since 2016, when Alibaba Group led InfinityAR’s Series C. Since then, the two have collaborated on augmented reality, computer vision and artificial intelligence projects.

Founded in 2013, the startup’s augmented glasses platform enables developers in a wide range of industries (retail, gaming, medical, etc.) to integrate AR into their apps. InfinityAR’s products include software for ODMs and OEMs and a SDK plug-in for 3D engines.

Alibaba’s foray into virtual reality started three years ago, when it invested in Magic Leap and then announced a new research lab in China to develop ways of incorporating virtual reality into its e-commerce platform.

InfinityAR’s research and development team will begin working out of Alibaba’s Israel Machine Laboratory, part of Alibaba DAMO Academy, the R&D initiative it is pouring $15 billion into with the goal of eventually serving two billion customers and creating 100 million jobs by 2036. DAMO Academy collaborates with universities around the world and Alibaba’s Israel Machine Laboratory has a partnership with Tel Aviv University focused on video analysis and machine learning.

In a press statement, the laboratory’s head, Lihi Zelnik-Manor, said “Alibaba is delighted to be working with InfinityAR as one team after three years of partnership. The talented team brings unique knowhow in sensor fusion, computer vision and navigation technologies. We look forward to exploring these leading technologies and offering additional benefits to customers, partners and developers.”

PicsArt hits 130 million MAUs as Chinese flock to its photo editing app

If you’re like me, who isn’t big on social media, you’d think that the image filters that come inside most apps will do the job. But for many others, especially the younger crowd, making their photos stand out is a huge deal.

The demand is big enough that PicsArt, a rival to filtering companies VSCO and Snapseed, recently hit 130 million monthly active users worldwide, roughly a year after it amassed 100 million MAUs. Like VSCO, PicsArt now offers video overlays though images are still its focus.

Nearly 80 percent of PicsArt’s users are under the age of 35 and those under 18 are driving most of its growth. The “Gen Z” (the generation after millennials) users aren’t obsessed with the next big, big thing. Rather, they pride themselves on having niche interests, be it K-pop, celebrities, anime, sci-fi or space science, topics that come in the form of filters, effects, stickers and GIFs in PicsArt’s content library.

“PicsArt is helping to drive a trend I call visual storytelling. There’s a generation of young people who communicate through memes, short-form videos, images and stickers, and they rarely use words,” Tammy Nam, who joined PicsArt as its chief operating officer in July, told TechCrunch in an interview.

PicsArt has so far raised $45 million, according to data collected by Crunchbase. It picked up $20 million from a Series B round in 2016 to grow its Asia focus and told TechCrunch that it’s “actively considering fundraising to fuel [its] rapid growth even more.”

picsart

PicsArt wants to help users stand out on social media, for instance, by virtually applying this rainbow makeup look on them. / Image: PicsArt via Weibo

The app doubles as a social platform, although the use case is much smaller compared to the size of Instagram, Facebook and other mainstream social media products. About 40 percent of PicsArt’s users post on the app, putting it in a unique position where it competes with the social media juggernauts on one hand, and serving as a platform-agnostic app to facilitate content creation for its rivals on the other.

What separates PicsArt from the giants, according to Nam, is that people who do share there tend to be content creators rather than passive consumers.

“On TikTok and Instagram, the majority of the people there are consumers. Almost 100 percent of the people on PicsArt are creating or editing something. For many users, coming on PicsArt is a built-in habit. They come in every week, and find the editing process Zen-like and peaceful.”

Trending in China

Most of PicsArt’s users live in the United States, but the app owes much of its recent success to China, its fastest growing market with more than 15 million MAUs. The regional growth, which has been 10-30 percent month-over-month recently, appears more remarkable when factoring in PicsArt’s zero user acquisition expense in a crowded market where pay-to-play is a norm for emerging startups.

“Many larger companies [in China] are spending a lot of money on advertising to gain market share. PicsArt has done zero paid marketing in China,” noted Nam.

Screenshot: TikTok-related stickers from PicsArt’s library

When people catch sight of an impressive image filtering effect online, many will inquire about the toolset behind it. Chinese users find out about the Armenian startup from photos and videos hashtagged #PicsArt, not different from how VSCO gets discovered from #vscocam on Instagram. It’s through such word of mouth that PicsArt broke into China, where users flocked to its Avengers-inspired disappearing superhero effect last May when the film was screening. China is now the company’s second largest market by revenue after the U.S.

Screenshot: PicsArts lets users easily apply the Avengers dispersion effect to their own photos

A hurdle that all media apps see in China is the country’s opaque guidelines on digital content. Companies in the business of disseminating information, from WeChat to TikTok, hire armies of content moderators to root out what the government deems inappropriate or illegal. PicsArt says it uses artificial intelligence to sterilize content and keeps a global moderator team that also keeps an eye on its China content.

Despite being headquartered in Silicon Valley, PicsArt has placed its research and development center in Armenia, home to founder Hovhannes Avoyan. This gives the startup access to much cheaper engineering talents in the country and neighboring Russia compared to what it can hire in the U.S. To date, 70 percent of the company’s 360 employees are working in engineering and product development (50 percent of whom are female), an investment it believes helps keep its creative tools up to date.

Most of PicsArt’s features are free to use, but the firm has also looked into getting paid. It rolled out a premium program last March that gives users more sophisticated functions and exclusive content. This segment has already leapfrogged advertising to be PicsArt’s largest revenue source, although in China, its budding market, paid subscriptions have been slow to come.

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PicsArt lets users do all sorts of creative work, including virtually posing with their idol. / Image: PicsArt via Weibo

“In China, people don’t want to pay because they don’t believe in the products. But if they understand your value, they are willing to pay, for example, they pay a lot for mobile games,” said Jennifer Liu, PicsArt China’s country manager.

And Nam is positive that Chinese users will come to appreciate the app’s value. “In order for this new generation to create really differentiated content, become influencers, or be more relevant on social media, they have to do edit their content. It’s just a natural way for them to do that.”

Grab launches SME loans and micro-insurance in Southeast Asia

In its latest move beyond ride-hailing, Southeast Asia’s Grab has started to offer financing to SMEs and micro-insurance to its drivers.

The launch comes just weeks after Grab raised $1.5 billion from the Vision Fund as part of a larger $5 billion Series H funding round that’ll be used to battle rival Go-Jek, which is vying with Grab to become the top on-demand app for Southeast Asia’s 600 million-plus consumers.

Grab acquired Uber’s Southeast Asia business in 2018 and it has spent the past year or so pushing a ‘super app’ strategy. That’s essentially an effort to become a daily app for Southeast Asia and, beyond rides, it entails food delivery, payments and other services on demand. Financial services are also a significant chunk of that focus, and now Grab is switching on loans and micro-insurance for the first time.

Initially, the first market is Singapore, but the plan is to expand to Southeast Asia’s five other major markets, Reuben Lai,  who is senior managing director and co-head of Grab Financial, told TechCrunch on the sidelines of the Money20/20 conference in Singapore. Lai declined to provide a timeframe for the expansion.

The company announced its launch into financial services last year and that, Lai confirmed, was a purely offline effort. Now the new financial products announced today will be available from within the Grab app itself.

Grab is also planning to develop a ‘marketplace’ of financial products that will allow other financial organizations to promote services to its 130 million registered users. Grab doesn’t provide figures for its active user base.

Grab announced a platform play last summer that allows selected partners to develop services that sit within its app. Some services have included grocery delivers from Happy Fresh, video streaming service Hooq, and health services from China’s Ping An.

The Khashoggi murder isn’t stopping SoftBank’s Vision Fund

Money talks in the startup community, especially when SoftBank comes knocking with the megabucks of its Vision Fund.

Despite the public outcry around the firm’s dependence on money from Saudi Arabia in the wake of that country’s assassination of Washington Post journalist Jamal Khashoggi, deal flow for Softbank’s Vision Fund appears to be back to normal.

The $100 billion megafund has done 21 deals over the last two quarters, that’s as more than in the other quarters of the previous year combined, according to data from Crunchbase, thanks to an uptick from Asia. Since the October 2 murder, there have been 11 investments in U.S. companies, seven in Asia, two in Europe and one in Latin America. Just this week, the fund completed a near $1.5 billion investment in Southeast Asia-based ride-hailing company Grab.

While U.S. and European firms have more options, and therefore, perhaps deserve more scrutiny, Softbank’s cash is increasingly the only game in town for startups in Asia, where there are fewer alternatives for later stage capital outside of large Chinese private equity firms or tech giants — which come with their own risks.

The Vision Fund is seen by some critics as tainted money for its links to the Saudi Royal family. Saudi Arabia’s Public Investment Fund (PIF) is the fund’s anchor investor and it is controlled by Crown Prince Mohammed bin Salman, who has been strongly linked with the murder of Saudi journalist Jamal Khashoggi, an outspoken critic of the regime.

Khashoggi, a Washington Post columnist, was murdered on October 2 after he entered the Saudi consulate in Istanbul. His visit was part of an effort to obtain divorce documents in order to marry his fiancée, but it ended with his apparently gruesome death. Audio clips suggest he was beheaded, dismembered, and had his fingers severed before his body was dissolved in acid, although new reports suggest it may have been burned.

Jamal Khashoggi — pictured in 2014 — was murdered in the Saudi consulate in Istanbul last year [Photographer: Ohammed Al-Shaikh/AFP/Getty Images]

The Vision Fund is designed to finance ‘global winners’ which, like all investment funds, is set up to provide ‘unfair advantages’ to help its companies grow into hugely important businesses. On the financial end, as is the norm, it is built to provide handsome returns to the LPs, thus directly boosting the coffers of the PIF, the Saudi kingdom, and by extension the Saudi prince himself.

An investigation is going, but there’s already plenty of evidence to suggest that the murder happened at the request of the prince.

Sources within the U.S. State Department have reportedly said it is “blindingly obvious” that the Crown Prince ordered the killing — he reportedly threatened to shoot Khashoggi one year before. But, now that the apparent period of outrage is over, SoftBank has reverted back to writing checks and companies are taking them in spite of the links to Saudi Arabia.

For startups, the money flow means that a major source of capital for growth or subsidies for customers comes from the Saudi royal family’s pockets — a regime that would reportedly not hesitate to murder a critical voice.

SoftBank’s Vision Fund has ramped up its deals over the past six months, according to data from Crunchbase

What are the companies saying?

SoftBank itself said it has a commitment to “the people” of Saudi Arabia that will see it deploy its capital unchanged, although Chairman Masayoshi Son did concede that he will wait on the findings of the investigation into the murder before deciding on whether PIF will be involved in a second Vision Fund.

The founders taking the capital have been more cautious. When questioned, executives talk about the specifics of their deal and their growth plans, most defer issues on the management of LPs, like PIF, to SoftBank. While offering words in support of the ongoing murder investigation, they manage to say little about the ethics of taking money from the Saudi regime.

Bom Kim, CEO of Korean e-commerce company Coupang — which raised $2 billion from the Vision Fund — told TechCrunch in November that the allegations around the murder “don’t represent us and don’t represent [Vision Fund] companies.”

“We are deeply concerned by the reported events and alongside SoftBank are monitoring the situation closely until the full facts are known,” Tokopedia CEO William Tanuwijaya told TechCrunch in December after the Vision Fund co-led a $1.1 billion round.

William Tanuwijaya is the co-founder and CEO of Tokopedia [Photographer: Jason Alden/Bloomberg]

OYO, the budget hotel network based out of India, did not respond to a request comment sent the day before this story was published. The startup raised $1 billion led by the Vision Fund in September.

TechCrunch was also unable to get a response to questions sent to Chehaoduo, the Vision Fund’s first China-based startup which raised $1.5 billion in February. The company is notable for being the only one of this group that didn’t count SoftBank as an existing investor prior to its Vision Fund deal.

The latest addition to the collection is Grab, the ride-hailing company in Southeast Asia that’s led by CEO Anthony Tan, who is very publicly a devout Christian. In a statement sent to TechCrunch this week, Grab defended its relationship with SoftBank, which first invested in Grab back in 2014:

What happened to Jamal Khashoggi was obviously horrible. We hope whoever is responsible is held accountable. We are not in a position to comment on behalf of SoftBank but from our perspective Son-san and the entire SoftBank team have brought so much value to the table for Grab – beyond just financing. They have brought advice, mentorship and potential business opportunities. The Vision Fund is about investing for the next 100 or 200 years and investing in trends that will move the needle for humanity in positive ways. This is a lofty and ultimately positive goal.

Anthony Tan is the co-founder and chief executive officer of Grab [Photographer: Ore Huiying/Bloomberg/Getty Images]

The Vision Fund is just getting started in Asia, however, with rumors suggesting it is planning to open offices in China and India. Singapore is presumably on that list, too, while the fund has been busy hiring a general team that will operate globally out of the U.S.

To date, the fund’s focus in Asia has been on some of the region’s largest (highest-valued) companies, but as it develops a local presence it is likely to seek out less obvious deals to grow its portfolio. That’s going to mean this question of ethics and conscience around the Vision Fund’s capital will present itself to more founders in Asia. Going on what we’ve seen so far, most will have no problem taking the money and issuing platitudinous statements.

Privately, VCs in the region who I have canvassed have told me that founders have little choice but to take the Vision Fund’s money. They explain that nobody else can offer billion-dollar-sized checks, while SoftBank is an existing investor in many of them already which gives it additional leverage. The fund also takes the aggressive approach of threatening to back rival companies if it doesn’t get the deals it wants, as we saw when Son said he’d consider a deal with Lyft when its Uber investment was uncertain.

That reality may be true — finding an alternative to a hypothetical $1 billion Vision Fund check is a daunting challenge — but we’ve reached a very sad time and place when the sheer size of an investment overrides important concerns about where that money came from.

5G phones are here but there’s no rush to upgrade

This year’s Mobile World Congress — the CES for Android device makers — was awash with 5G handsets.

The world’s No.1 smartphone seller by marketshare, Samsung, got out ahead with a standalone launch event in San Francisco, showing off two 5G devices, just before fast-following Android rivals popped out their own 5G phones at launch events across Barcelona this week.

We’ve rounded up all these 5G handset launches here. Prices range from an eye-popping $2,600 for Huawei’s foldable phabet-to-tablet Mate X — and an equally eye-watering $1,980 for Samsung’s Galaxy Fold; another 5G handset that bends — to a rather more reasonable $680 for Xiaomi’s Mi Mix 3 5G, albeit the device is otherwise mid-tier. Other prices for 5G phones announced this week remain tbc.

Android OEMs are clearly hoping the hype around next-gen mobile networks can work a little marketing magic and kick-start stalled smartphone growth. Especially with reports suggesting Apple won’t launch a 5G iPhone until at least next year. So 5G is a space Android OEMs alone get to own for a while.

Chipmaker Qualcomm, which is embroiled in a bitter patent battle with Apple, was also on stage in Barcelona to support Xiaomi’s 5G phone launch — loudly claiming the next-gen tech is coming fast and will enhance “everything”.

“We like to work with companies like Xiaomi to take risks,” lavished Qualcomm’s president Cristiano Amon upon his hosts, using 5G uptake to jibe at Apple by implication. “When we look at the opportunity ahead of us for 5G we see an opportunity to create winners.”

Despite the heavy hype, Xiaomi’s on stage demo — which it claimed was the first live 5G video call outside China — seemed oddly staged and was not exactly lacking in latency.

“Real 5G — not fake 5G!” finished Donovan Sung, the Chinese OEM’s director of product management. As a 5G sales pitch it was all very underwhelming. Much more ‘so what’ than ‘must have’.

Whether 5G marketing hype alone will convince consumers it’s past time to upgrade seems highly unlikely.

Phones sell on features rather than connectivity per se, and — whatever Qualcomm claims — 5G is being soft-launched into the market by cash-constrained carriers whose boom times lie behind them, i.e. before over-the-top players had gobbled their messaging revenues and monopolized consumer eyeballs.

All of which makes 5G an incremental consumer upgrade proposition in the near to medium term.

Use-cases for the next-gen network tech, which is touted as able to support speeds up to 100x faster than LTE and deliver latency of just a few milliseconds (as well as connecting many more devices per cell site), are also still being formulated, let alone apps and services created to leverage 5G.

But selling a network upgrade to consumers by claiming the killer apps are going to be amazing but you just can’t show them any yet is as tough as trying to make theatre out of a marginally less janky video call.

“5G could potentially help [spark smartphone growth] in a couple of years as price points lower, and availability expands, but even that might not see growth rates similar to the transition to 3G and 4G,” suggests Carolina Milanesi, principal analyst at Creative Strategies, writing in a blog post discussing Samsung’s strategy with its latest device launches.

“This is not because 5G is not important, but because it is incremental when it comes to phones and it will be other devices that will deliver on experiences, we did not even think were possible. Consumers might end up, therefore, sharing their budget more than they did during the rise of smartphones.”

The ‘problem’ for 5G — if we can call it that — is that 4G/LTE networks are capably delivering all the stuff consumers love right now: Games, apps and video. Which means that for the vast majority of consumers there’s simply no reason to rush to shell out for a ‘5G-ready’ handset. Not if 5G is all the innovation it’s got going for it.

LG V50 ThinQ 5G with a dual screen accessory for gaming

Use cases such as better AR/VR are also a tough sell given how weak consumer demand has generally been on those fronts (with the odd branded exception).

The barebones reality is that commercial 5G networks are as rare as hen’s teeth right now, outside a few limited geographical locations in the U.S. and Asia. And 5G will remain a very patchy patchwork for the foreseeable future.

Indeed, it may take a very long time indeed to achieve nationwide coverage in many countries, if 5G even ends up stretching right to all those edges. (Alternative technologies do also exist which could help fill in gaps where the ROI just isn’t there for 5G.)

So again consumers buying phones with the puffed up idea of being able to tap into 5G right here, right now (Qualcomm claimed 2019 is going to be “the year of 5G!”) will find themselves limited to just a handful of urban locations around the world.

Analysts are clear that 5G rollouts, while coming, are going to be measured and targeted as carriers approach what’s touted as a multi-industry-transforming wireless technology cautiously, with an eye on their capex and while simultaneously trying to figure out how best to restructure their businesses to engage with all the partners they’ll need to forge business relations with, across industries, in order to successfully sell 5G’s transformative potential to all sorts of enterprises — and lock onto “the sweep spot where 5G makes sense”.

Enterprise rollouts therefore look likely to be prioritized over consumer 5G — as was the case for 5G launches in South Korea at the back end of last year.

“4G was a lot more driven by the consumer side and there was an understanding that you were going for national coverage that was never really a question and you were delivering on the data promise that 3G never really delivered… so there was a gap of technology that needed to be filled. With 5G it’s much less clear,” says Gartner’s Sylvain Fabre, discussing the tech’s hype and the reality with TechCrunch ahead of MWC.

“4G’s very good, you have multiple networks that are Gbps or more and that’s continuing to increase on the downlink with multiple carrier aggregation… and other densification schemes. So 5G doesn’t… have as gap as big to fill. It’s great but again it’s applicability of where it’s uniquely positioned is kind of like a very narrow niche at the moment.”

“It’s such a step change that the real power of 5G is actually in creating new business models using network slicing — allocation of particular aspects of the network to a particular use-case,” Forrester analyst Dan Bieler also tells us. “All of this requires some rethinking of what connectivity means for an enterprise customer or for the consumer.

“And telco sales people, the telco go-to-market approach is not based on selling use-cases, mostly — it’s selling technologies. So this is a significant shift for the average telco distribution channel to go through. And I would believe this will hold back a lot of the 5G ambitions for the medium term.”

To be clear, carriers are now actively kicking the tyres of 5G, after years of lead-in hype, and grappling with technical challenges around how best to upgrade their existing networks to add in and build out 5G.

Many are running pilots and testing what works and what doesn’t, such as where to place antennas to get the most reliable signal and so on. And a few have put a toe in the water with commercial launches (globally there are 23 networks with “some form of live 5G in their commercial networks” at this point, according to Fabre.)

But at the same time 5G network standards are yet to be fully finalized so the core technology is not 100% fully baked. And with it being early days “there’s still a long way to go before we have a real significant impact of 5G type of services”, as Bieler puts it. 

There’s also spectrum availability to factor in and the cost of acquiring the necessary spectrum. As well as the time required to clear and prepare it for commercial use. (On spectrum, government policy is critical to making things happen quickly (or not). So that’s yet another factor moderating how quickly 5G networks can be built out.)

And despite some wishful thinking industry noises at MWC this week — calling for governments to ‘support digitization at scale’ by handing out spectrum for free (uhhhh, yeah right) — that’s really just whistling into the wind.

Rolling out 5G networks is undoubtedly going to be very expensive, at a time when carriers’ businesses are already faced with rising costs (from increasing data consumption) and subdued revenue growth forecasts.

“The world now works on data” and telcos are “at core of this change”, as one carrier CEO — Singtel’s Chua Sock Koong — put it in an MWC keynote in which she delved into the opportunities and challenges for operators “as we go from traditional connectivity to a new age of intelligent connectivity”.

Chua argued it will be difficult for carriers to compete “on the basis of connectivity alone” — suggesting operators will have to pivot their businesses to build out standalone business offerings selling all sorts of b2b services to support the digital transformations of other industries as part of the 5G promise — and that’s clearly going to suck up a lot of their time and mind for the foreseeable future.

In Europe alone estimates for the cost of rolling out 5G range between €300BN and €500BN (~$340BN-$570BN), according to Bieler. Figures that underline why 5G is going to grow slowly, and networks be built out thoughtfully; in the b2b space this means essentially on a case-by-case basis.

Simply put carriers must make the economics stack up. Which means no “huge enormous gambles with 5G”. And omnipresent ROI pressure pushing them to try to eke out a premium.

“A lot of the network equipment vendors have turned down the hype quite a bit,” Bieler continues. “If you compare this to the hype around 3G many years ago or 4G a couple of years ago 5G definitely comes across as a soft launch. Sort of an evolutionary type of technology. I have not come across a network equipment vendors these days who will say there will be a complete change in everything by 2020.”

On the consumer pricing front, carriers have also only just started to grapple with 5G business models. One early example is TC parent Verizon’s 5G home service — which positions the next-gen wireless tech as an alternative to fixed line broadband with discounts if you opt for a wireless smartphone data plan as well as 5G broadband.

From the consumer point of view, the carrier 5G business model conundrum boils down to: What is my carrier going to charge me for 5G? And early adopters of any technology tend to get stung on that front.

Although, in mobile, price premiums rarely stick around for long as carriers inexorably find they must ditch premiums to unlock scale — via consumer-friendly ‘all you can eat’ price plans.

Still, in the short term, carriers look likely to experiment with 5G pricing and bundles — basically seeing what they can make early adopters pay. But it’s still far from clear that people will pay a premium for better connectivity alone. And that again necessitates caution. 

5G bundled with exclusive content might be one way carriers try to extract a premium from consumers. But without huge and/or compelling branded content inventory that risks being a too niche proposition too. And the more carriers split their 5G offers the more consumers might feel they don’t need to bother, and end up sticking with 4G for longer.

It’ll also clearly take time for a 5G ‘killer app’ to emerge in the consumer space. And such an app would likely need to still be able to fallback on 4G, again to ensure scale. So the 5G experience will really need to be compellingly different in order for the tech to sell itself.

On the handset side, 5G chipset hardware is also still in its first wave. At MWC this week Qualcomm announced a next-gen 5G modem, stepping up from last year’s Snapdragon 855 chipset — which it heavily touted as architected for 5G (though it doesn’t natively support 5G).

If you’re intending to buy and hold on to a 5G handset for a few years there’s thus a risk of early adopter burn at the chipset level — i.e. if you end up with a device with a suckier battery life vs later iterations of 5G hardware where more performance kinks have been ironed out.

Intel has warned its 5G modems won’t be in phones until next year — so, again, that suggests no 5G iPhones before 2020. And Apple is of course a great bellwether for mainstream consumer tech; the company only jumps in when it believes a technology is ready for prime time, rarely sooner. And if Cupertino feels 5G can wait, that’s going to be equally true for most consumers.

Zooming out, the specter of network security (and potential regulation) now looms very large indeed where 5G is concerned, thanks to East-West trade tensions injecting a strange new world of geopolitical uncertainty into an industry that’s never really had to grapple with this kind of business risk before.

Chinese kit maker Huawei’s rotating chairman, Guo Ping, used the opportunity of an MWC keynote to defend the company and its 5G solutions against U.S. claims its network tech could be repurposed by the Chinese state as a high tech conduit to spy on the West — literally telling delegates: “We don’t do bad things” and appealing to them to plainly to: “Please choose Huawei!”

Huawei rotating resident, Guo Ping, defends the security of its network kit on stage at MWC 2019

When established technology vendors are having to use a high profile industry conference to plead for trust it’s strange and uncertain times indeed.

In Europe it’s possible carriers’ 5G network kit choices could soon be regulated as a result of security concerns attached to Chinese suppliers. The European Commission suggested as much this week, saying in another MWC keynote that it’s preparing to step in try to prevent security concerns at the EU Member State level from fragmenting 5G rollouts across the bloc.

In an on stage Q&A Orange’s chairman and CEO, Stéphane Richard, couched the risk of destabilization of the 5G global supply chain as a “big concern”, adding: “It’s the first time we have such an important risk in our industry.”

Geopolitical security is thus another issue carriers are having to factor in as they make decisions about how quickly to make the leap to 5G. And holding off on upgrades, while regulators and other standards bodies try to figure out a trusted way forward, might seem the more sensible thing to do — potentially stalling 5G upgrades in the meanwhile.

Given all the uncertainties there’s certainly no reason for consumers to rush in.

Smartphone upgrade cycles have slowed globally for a reason. Mobile hardware is mature because it’s serving consumers very well. Handsets are both powerful and capable enough to last for years.

And while there’s no doubt 5G will change things radically in future, including for consumers — enabling many more devices to be connected and feeding back data, with the potential to deliver on the (much hyped but also still pretty nascent) ‘smart home’ concept — the early 5G sales pitch for consumers essentially boils down to more of the same.

“Over the next ten years 4G will phase out. The question is how fast that happens in the meantime and again I think that will happen slower than in early times because [with 5G] you don’t come into a vacuum, you don’t fill a big gap,” suggests Gartner’s Fabre. “4G’s great, it’s getting better, wi’fi’s getting better… The story of let’s build a big national network to do 5G at scale [for all] that’s just not happening.”

“I think we’ll start very, very simple,” he adds of the 5G consumer proposition. “Things like caching data or simply doing more broadband faster. So more of the same.

“It’ll be great though. But you’ll still be watching Netflix and maybe there’ll be a couple of apps that come up… Maybe some more interactive collaboration or what have you. But we know these things are being used today by enterprises and consumers and they’ll continue to be used.”

So — in sum — the 5G mantra for the sensible consumer is really ‘wait and see’.

Korean conglomerate SK leads $600M round for Chinese chipmaker Horizon Robotics

Horizon Robotics, a three-year-old Chinese startup backed by Intel Capital, just raised a mega-round of fundings from domestic and overseas backers as it competes for global supremacy in developing AI solutions and chips aimed at autonomous vehicles, smart retail stores, surveillance equipment and other devices for everyday scenarios.

The Beijing-based company announced Wednesday in a statement that it’s hauled in $600 million in a Series B funding round led by SK China, the China subsidiary of South Korean conglomerate SK Group; SK Hynix, SK’s semiconductor unit; and a number of undisclosed Chinese automakers along with their funds.

The fresh capital drove Horizon’s valuation to at least $3 billion, the company claims. The Financial Times previously reported that the chipmaker was raising up to $1 billion in a funding round that could value it at as much as $4 billion. Such a price tag could perhaps be justified by the vast amount of resources China has poured into the red-hot sector as part of a national push to shed dependency on imported chips and work towards what analysts call “semiconductor sovereignty.”

Horizon did not specify how the proceeds will be used. The company could not be immediately reached for comments.

In 2015, Yu Kai left Baidu as the Chinese search engine giant’s deep learning executive and founded Horizon to make the “brains” for a broad spectrum of connected devices. In doing so Yu essentially set himself up for a race against industry veterans like Intel and Nvidia. To date, the startup has managed to make a dent by securing government contracts, which provide a stable source of income for China’s AI upstarts including SenseTime, and several big-name clients like SK’s telecommunication unit, which is already leveraging Horizon’s algorithms to develop smart retail solutions. Like many of its peers who are at the forefront of the AI race, Horizon has set up an office in Silicon Valley and hiring local talents for its lab.

Other investors who joined the round included several of Horizon’s returning investors such as Hillhouse Capital and Morningside Venture Capital . There were also some heavyweight new backers, such as a fund run by conglomerate China Oceanwide Holdings as well as the CSOBOR Fund, a private equity entity set up by China’s state-owned CITIC to back projects pertaining to China’s ambitious “One Belt, One Road” modern Silk Road initiative.

Xiaomi-backed electric toothbrush Soocas raises $30 million Series C

China’s Soocas continues to jostle with global toothbrush giants as it raises 200 million yuan ($30 million) in a series C funding round. The Shenzhen-based oral care manufacturer has secured the new capital from lead investor Vision Knight Capital, with Kinzon Capital, Greenwoods Investment, Yunmu Capital and Cathay Capital also participating in the round.

The new proceeds arrived less than a year after Soocas, one of Xiaomi’s home appliance portfolio startups, snapped up close to 100 million yuan in a Series B round last March. Best known for its budget smartphones, Xiaomi has a grand plan to construct an Internet of Things empire that encompasses smart TVs to electric toothbrushes, and it has been gearing up by shelling out strategic investments for consumer goods makers such as Soocas.

Founded in 2015, Soocas’s rise reflects a growing demand for personal care accessories as people’s disposable income increases. Electric toothbrushes are a relatively new concept to most Chinese consumers but the category is picking up steam fast. According to data compiled by Alibaba’s advertising service Alimama, gross merchandise volume sales of electric toothbrushes grew 97 percent between 2015 and 2017. Multinational brands still dominate the oral care space in China, with Procter & Gamble, Colgate and Hawley & Hazel Chemical occupying the top three spots as of 2017, a report from Euromonitor International shows, but local players are rapidly catching up.

Soocas faces some serious competition from its Chinese peers Usmile and Roaman. Like Soocas, the two rivals have also placed their offices in southern China for proximity to the region’s robust supply chain resources. Part of Soocas’s strength comes from its tie-up with Xiaomi, which gives its portfolio companies access to a massive online and offline distribution network worldwide. That comes at a cost, however, as Xiaomi is known to impose razor-thin margins on the companies it backs and controls.

According to a statement from Soocas’s founder Meng Fandi, the company has achieved profitability since its launch and has seen its margin increase over the years. It plans to spend its fresh proceeds on marketing in a race to lure China’s increasingly sophisticated young consumers with toothbrushes and its new lines of hair dryers, nasal trimmers and other tools that make you squeaky-clean.

Tesla to recall 14,000 Model S cars in China over faulty Takata airbags

China’s top market regulator said on Friday that Tesla will recall a total of 14,123 imported Model S vehicles in the country over potentially deadly airbags.

The recall is part of an industry-wide crackdown on Takata-made front passenger airbags, which involves roughly 37 million vehicles including more mainstream brands such as Toyota and Ford, as noted by the United States Department of Transportation. These defective airbags use a propellant that might rupture the airbag and cause serious injuries, or even deaths.

Tesla has begun a worldwide recall of its sedans that use Takata airbags, the firm said on its Support blog. It noted that the airbags only become defective based on certain factors, such as age. The recall does not affect later Model S vehicles, Roadster, Model X, or its more affordable Model 3.

The China recall involves Model S cars manufactured between February 2014 to December 2016, shows a notice posted on the website of China’s State Administration for Market Regulation. TechCrunch has reached out to Tesla for comments and will update the article once more information is available.

The setback comes as Tesla is making a big push into the world’s largest auto market and tapping on Beijing’s effort to phase out fossil-fuel cars for China. The company recently reached an agreement with the Shanghai government to build its first Gigafactory outside the US, which will focus on making Model 3 cars for Chinese consumers. There is no target date for the factory to become fully operational yet.

Despite being an alluring market, China has been a major source of Tesla’s concerns over the past months due to escalating trade tensions and the rollback of government subsidies for green vehicles. Tesla responded by slashing its Model 3 price by 7.6 percent for China to neutralize heavy tariffs on imported cars.

The Palo Alto-based company previously recalled 8,898 Model S vehicles in China over corroding bolts, which it claimed at the time had not led to any accidents or injuries.

Grab moves to offer digital insurance services in Southeast Asia

Grab is Southeast Asia’s top ride-hailing firm, thanks in no small part to its acquisition of Uber’s local business last year, but the company also houses an ambitious fintech arm, too. That just added another vertical to its business after Grab announced it is teaming up with China’s ZhongAn to introduce insurance.

Grab and ZhongAn International, the international arm of the Chinese insurance giant, said today they will create a joint venture that will provide digital insurance services across Southeast Asia. Grab said the new business will partner with insurance companies to offer the services via its mobile app. Chubb — a company that already works with Grab to offer micro-loans to its drivers — is the first partner to commit, it’ll offer insurance for Grab drivers starting in Singapore.

ZhongAn is widely-lauded for being China’s first digital-only insurance platform. It’s backed by traditional insurance giant PingAn and Chinese internet giants Tencent and Alibaba.

Grab’s move into digital insurance comes a day after Singapore Life, an online insurer in Singapore, closed the second part of a $33 million funding round aimed at expanding its business in Southeast Asia.

This ZhongAn partnership adds another layer to Grab’s services and fintech business, which already includes payments — both offline and online — and is scheduled to move into cross-border remittance and online healthcare, the latter being a deal with ZhongAn sibling PingAn Good Doctor.

The push is also part of a wider strategy from Grab, which was last valued at over $11 billion and is aiming to turn its app from merely ride-hailing to an everyday needs app, in the style of Chinese ‘super apps’ like Meituan and WeChat.

Indeed, Grab President Ming Ma referenced that very ambitious calling the insurance products “part of our commitment to becoming the leading everyday super app in the region.”

Last summer, Grab opened its platform to third-parties which can lean on its considerable userbase — currently at 130 million downloads — to reach consumers in Southeast Asia, where the fast-growing ‘digital economy’ is tipped to triple to reach $240 billion by 2025. Grab’s platform has welcomed services like e-grocer HappyFresh, deals from travel giant Booking and more.

Grab has also made efforts to develop the local ecosystem with its own accelerator program — called ‘Velocity’ — which, rather than providing equity, helps young companies to leverage its platform. It has also made investments, including a deal with budget hotel brand OYO in India, a fellow SoftBank portfolio company that has designs on expansion in Southeast Asia.

Grab itself operates across eight markets in Southeast Asia, where it claims to have completed more than two billion rides to date. The company is currently raising a massive Series H fund which has already passed $3 billion in capital raised but has a loftier goal of reaching $5 billion, as we reported recently.

Go-Jek, Grab’s chief rival, is expanding its business outside of Indonesia after launching in Vietnam, Thailand and Vietnam. Like Grab, it, too, offers services beyond ride-hailing and the company — which is backed by the likes of Meituan, Google and Tencent — is close to finalizing a new $2 billion funding round for its battle with Grab.

China’s lunar probe makes history by successfully soft-landing on the far side of the moon

It’s not Lunar New Year yet, but there is something new on the moon. In a major milestone for space exploration, China announced that its lunar program has successfully soft-landed a probe on the far side of the moon, making it the first one to do so. The historic landing was reported by Xinhua, China’s official news agency, earlier today.

According to the China National Space Administration, the probe, consisting of a lander and rover, touched down at about 10:26AM Beijing time. This is the first ever soft-landing (meaning a landing without damage or destruction to the space vehicle) on the far side of the moon, which is never visible from Earth. Named after the Chinese moon goddess, Chang’e-4 launched on Dec. 8 from the Xichang Satellite Launch Center in Sichuan province.

China’s Chang’e-4 probe softlands on Moon’s far side pic.twitter.com/Z1R6tbpBMI

— China Xinhua News (@XHNews) January 3, 2019

The South China Morning Post reported earlier this week that the Chang’e-4 will be used for “astronomical observation using low-frequency radio, surveying the terrain and landforms, detecting the mineral composition and shallow lunar surface structure, and measuring neutron radiation and neutral atoms.” The successful soft-landing is important for space exploration because there is relatively little information about the far side of the moon compared to the side visible from Earth, which has been explored and surveyed by previous missions.

Photographs taken by earlier spacecraft, including the Soviet Union’s Luna 3 and Zond 3 (launched in 1959 and 1965, respectively) and NASA’s Lunar Orbiter program (launched in 1966), found significant differences between the far side’s terrain and the surface of the moon visible from Earth. In 1962, NASA’s Ranger 4 probe became the first spacecraft to impact on the moon, but was unable to send back data after landing.

Since direct communication between Chang’e-4 and Earth is blocked because of the probe’s position, China also launched a relay satellite called Queqiao, or Magpie Bridge, that is currently 400,000 km above Earth, positioned between it and the moon.

Chang’e-4’s successful landing concludes the second phase of the Chinese Lunar Exploration Program (CLEP). The first phase was the launch of Yutu, the lunar rover of Chang’e-3, which landed on the moon in December 2013, but stopped moving after 40 days due to a mechanical problem (it is still able to transmit data and photos, including true color high-definition photos). The successful landing of Chang’e-3 was another a significant milestone for China’s space program, making it only the third country after the U.S. and Soviet Union to soft-land on the moon. After Chang’e-4, the third and final phase of CLEP will be a returnable spacecraft called Chang’e-5. Set to launch by 2020, Chang’e-5 will be used to collect samples.

Tencent left out as China approves the release of 80 new video games

Chinese internet giant Tencent has been excluded from the first batch of video game license approvals issued by the state-run government since March.

China regulators approved Saturday the released of 80 online video games after a months-long freeze, Reuters first reported. None of the approved titles listed on the approval list were from Tencent Holdings, the world’s largest gaming company.

Licenses are usually granted on a first come, first serve basis in order of when studios file their applications, several game developers told TechCrunch. There are at least 7,000 titles in the waiting list, among which only 3,000 may receive the official licenses in 2019, China’s 21st Century Business Herald reported citing experts. Given the small chance of making it to the first batch, it’s unsurprising the country’s two largest game publishers Tencent and NetEase were absent.

The controlled and gradual unfreezing process is in line with a senior official’s announcement on December 21. While the Chinese gaming regulator is trying its best to greenlight titles as soon as possible, there is a huge number of applications in the pipeline, the official said. Without licenses, studios cannot legally monetize their titles in China. The hiatus in approval has slashed earnings in the world’s largest gaming market, which posted a 5.4 percent year-over-year growth in the first half of 2018, the slowest rate in the last ten years according to a report by Beijing-based research firm GPC and China’s official gaming association CNG.

Tencent is best known as the company behind WeChat, a popular messaging platform in China. But much of its revenue comes from gaming. Even with a recent decline in gaming revenue, the company has a thriving business that is majority owner of several companies including Activision, Grinding Gears Games, Riot and Supercell. In 2012, the company took a 40 percent stake in Epic Games, maker of Fortnite. Tencent also has alliances or publishing deals with other video gaming companies such as Square Enix, makers of Tomb Raider. 

The ban on new video game titles in China has affected Tencent’s bottom line. The company reported revenue from gaming fell 4 percent in the third quarter due to the prolonged freeze on licenses. At the time, Tencent claimed it had 15 games with monetization approval in its pipeline. To combat pressure in its consumer-facing gaming business, the Chinese giant launched a major reorganization in October to focus more on enterprise-related initiatives such as cloud services and maps. Founder and CEO Pony Ma said at the time the strategic repositioning would prepare Tencent for the next 20 years of operation.

“In the second stage, we aspire to enable our partners in different industries to better connect with consumers via an expanding, open and connected ecosystem,” stated Ma.

China tightened restrictions in 2018 to combat games that are deemed illegal, immoral, low-quality or have a negative social impact such as those that make children addicted or near-sighted. This means studios, regardless of size, need to weigh new guidelines in their production and user interaction. Tencent placed its own restrictions on gaming in what appeared to be an attempt to assuage regulators. The company has expanded its age verification system, an effort aimed at curbing use of young players, and placed limits on daily play.

Update (December 30, 10:00 am, GMT+8): Adds context on China’s gaming industry and Tencent.

Alibaba-backed Hellobike bags new funds as it marches into ride-hailing

2018 has been a rough year for China’s bike-sharing giants. Alibaba-backed Ofo pulled out of dozens of international cities as it fought with a severe cash crunch. Tencent-backed Mobike puts a brake on expansion after it was sold to neighborhood services provider Meituan Dianping. But one newcomer is pedaling against the wind.

Hellobike, currently the country’s third-largest bike-sharing app according to Analysys data, announced this week that it raised “billions of yuan” ($1 = 6.88 yuan) in a new round. The company declined to reveal details on the funding amount and use of the proceeds when inquired by TechCrunch.

Leading the round were Ant Financial, the financial affiliate of Alibaba and maker behind digital wallet Alipay, and Primavera Capital, a Chinese investment firm that’s backed other mobility startups including electric automaker Xpeng and car trading platform Souche. The fledgling startup also got SoftBank interested in shelling out an investment, The Information reported in November. The fresh capital arrived about a year after it secured $350 million from investors including Ant Financial.

As China’s bicycle giants burn through billions of dollars to tout subsidized rides, they’ve gotten caught up in financial troubles. Ten months after Ofo raised $866 million, the startup is reportedly mulling bankruptcy. Meanwhile, Mobike is downsizing its fleet to “avoid an oversupply,” a Meituan executive recently said.

It’s interesting to note that while both Ofo and Hellobike fall under the Alibaba camp, they began with different geographic targets. By May, only 5 percent of Hellobike’s users were in China’s Tier 1 cities, while that ratio was over 30 percent for both Mobike and Ofo, a report by Trustdata shows.

This small-town strategy gives Hellobike an edge. As the bike-sharing markets in China’s major cities become crowded, operators began turning to lower-tier cities in 2017, a report from the China Academy of Information and Communications Technology points out.

The new contender is still dwarfed by its larger competitors in terms of user number. Ofo and Mobike command 43 million and 38 million unique monthly mobile installs, respectively, while Hellobike stands at 8 million, accroding to iResearch.

Hellobike’s ambition doesn’t stop at two-wheelers. In September, it rebranded its Chinese name to HelloTransTech to signify an extension into other transportation means. Aside from bikes, the startup also offers shared electric bikes, ride-hailing and carpooling, a category that became much contested following high-profile passenger murders on Didi Chuxing .

In May and August, two female customers were killed separately when they used the Hitch service on Didi, China’s biggest ride-hailing platform that took over Uber’s China business. The incidents sparked a huge public and regulatory backlash, forcing Didi to suspend its carpooling service up to this day. But this week, its newly minted rival Hellobike decides to forge ahead with a campaign to recruit carpooling drivers. Time will tell whether the latecomer can grapple with heightened security measures and fading customer confidence in riding with strangers.

Tesla shares fall 7.6% following price cuts in China and Elon Musk’s promise to reimburse missed tax credits

Monday was a tough day for the U.S. stock market, but Tesla shares were hit especially hard. The stock fell by 7.6 percent after Tesla cut the Model 3’s price in China and CEO Elon Musk promised to reimburse U.S. customers if they miss a tax credit deadline due to Model 3 shipment delays.

Reuters reported this weekend that the Model 3’s prices on Tesla’s China website had been reduced by up to 7.6 percent, with the starting price now at 499,000 RMB (about $72,000). This is the third time since November that Tesla has lowered the price of its vehicles in China.

The first was in November, when it slashed the price of Model X and Model S vehicles by 12 to 26 percent, stating that it was “absorbing a significant part of the tariff to help make cars more affordable for customers in China.” Then this month, Tesla cut Model X and Model S prices again, citing China’s decision to temporarily suspend a new 25 percent tariff on American-produced vehicles and auto parts as the two countries reached a ceasefire in the trade war.

In October, Tesla announced on its site that if U.S. customers needed to order a Model S, Model X, or Model 3 before October 15 if they wanted the full $7,500 federal tax credit, which begins to phase out once a manufacturer sells 200,000 qualifying vehicles in the U.S. (Tesla hit that milestone earlier this year). As a result, the federal tax vehicle will be cut 50 percent to $3,750 for vehicles delivered January 1 to June 30, 2019, before behing halved again on July 1.

On Sunday, Musk tweeted in response to a question that if a customer’s pre-December order isn’t delivered before the end of the year, Tesla will reimburse the tax credits they missed out on.

If Tesla committed delivery & customer made good faith efforts to receive before year end, Tesla will cover the tax credit difference

Elon Musk (@elonmusk) December 22, 2018

After months of production and delivery delays, Tesla ramped up fulfillment of Model 3 orders in the third quarter of this year, when it delivered a total of 83,500 vehicles, including 55,840 Model 3 units.

China’s Tencent Music raises $1.1 billion in downsized US IPO

Tencent Music, China’s largest streaming company, has raised $1.1 billion in a U.S. IPO after it priced its shares at $13 a piece ahead of a listing on the Nasdaq.

That makes it one of the largest tech listings of the year, but the pricing is at the bottom end of its $13-$15 range indicating that the much-anticipated IPO has felt the effects of an uncertain market. Indeed, the company is said to have paused the listing process, which it started in early October, for a time so choppy are the waters right now — and that’s not even mentioning a shareholder-led lawsuit that was filed last week.

Still, this listing gives TME — Tencent Music Entertainment, a spin-out of Tencent — an impressive $21.3 billion valuation which is just below the $30 billion that Spotify commanded when it went public earlier this year via an unconventional direct listing. TME was valued at $12 billion at the time of Spotify’s listing in Q1 of this year so this is also a big jump. (Meanwhile, Spotify’s present market cap is around $24 billion.)

The company operates a constellation of music streaming services in China which span orthodox Spotify-style streaming as well as karaoke and live-streaming services. Altogether, TME claims 800 million registered users — although there’s likely a little creative accounting or double counting across apps involved since the Chinese government itself says there are 800 million internet users in the entire country.

Notably, though, TME is profitable. The same can’t be said for Spotify and likely Apple Music — although we don’t have financials for the latter. That’s down to the unique business model that the Chinese firm operates, with subscription and virtual goods a major driver for its businesses, while Tencent’s ubiquitous WeChat messaging app helps it reach users and gain virality.

Tidy though the numbers are, its revenues are dwarfed by those of Spotify, which grossed €1.4 billion ($1.59 billion) in sales in its last quarter. For comparison, TME did RMB 8.6 billion ($1.3 billion) in revenue for the first six months of this year.

TME executives are taking that as a sign that there’s ample scope to grow their business, although it seems unlikely that will ever be as global as Spotify. The two companies might yet collaborate in the future though, since they are both mutual shareholders via a share swap deal that concluded one year ago.

You can read more about TME in our deep dive below.

We also wrote about the lessons Western services like Spotify and Apple Music can learn from TME.

Apple says iPhones remain on sale in China following court injunction

Apple has filed an appeal to overturn a court decision that could ban iPhone sales in China, the company said on Monday, adding that all of its models remain available in its third-largest market.

The American giant is locked in a legal battle in the world’s biggest smartphone market. On Monday, Qualcomm announced that a court in Fujian Province has granted a preliminary injunction banning the import and sales of old iPhone models in China because they violated two patents owned by the American chipmaker.

The patents in question relate to features enabling consumers to edit photos and manage apps on smartphone touchscreens, according to Qualcomm.

“Apple continues to benefit from our intellectual property while refusing to compensate us. These Court orders are further confirmation of the strength of Qualcomm’s vast patent portfolio,” said Don Rosenberg, executive vice president and general counsel of Qualcomm, in a statement.

Apple fought back in a statement calling Qualcomm’s effort to ban its products “another desperate move by a company whose illegal practices are under investigation by regulators around the world.” It also claimed that Qualcomm is asserting three patents they had never raised before, including one which has already been invalidated.

It is unclear at this point what final effects the court injunction will have on Apple’s sales in China.

The case is part of an ongoing global patent dispute between Qualcomm and Apple, which saw the former seek to block the manufacturing and sale of iPhones in China over patent issues pertaining to payments last year.

Qualcomm shares were up 3 percent on Monday. Apple opened down more than 2 percent before closing up 0.7 percent. Citi lowered its Apple price target to $200 a share from $240 a share, saying in a note to investors that while it does not expect China to ban or impose additional tariffs on Apple, “should this occur Apple has material exposure to China.”

The Apple case comes as the tech giant faces intensifying competition in China, which represented 18 percent of its total sales from the third quarter. The American company’s market share in China shrunk from 7.2 percent to 6.7 percent year-over-year in the second quarter as local competitors Huawei and Oppo gained more ground, according to market research firm IDC.

The annual drop is due to Apple’s high prices, IDC suggests, but its name “is still very strong in China” and “the company will fare well should it release slightly cheaper options later in the year.”

CRISPR scientist in China claims his team’s research has resulted in the world’s first gene-edited babies

In what represents a dramatic and ethically fraught escalation of CRISPR research, a Chinese scientist from a university in Shenzhen claims he has succeeded in helping create the world’s first genetically-edited babies. Dr. Jiankui He told the Associated Press that twin girls were born earlier this month after he edited their embryos using CRISPR technology to remove the CCR5 gene, which plays a critical role in enabling many forms of the HIV virus to infect cells.

The AP’s interview was published after a report by the MIT Technology Review earlier today that He’s team at the Southern University of Science and Technology wants to use CRISPR technology to eliminate the CCR5 gene and create children with resistance to HIV.

He’s claims are certain to cause a huge stir at the Second International Summit on Human Genome Editing, set to begin in Hong Kong on Tuesday. According to the Technology Review, the summit’s organizers were apparently not notified of He’s plans for the study, though the AP says He informed them today. (It is important to note that there is still no independent confirmation of He’s claim and that it has not been published in a peer-reviewed journal.)

During his interview with the AP, He, who studied at Rice and Stanford before returning to China, said he felt “a strong responsibility that it’s not just to make a first, but also make it an example” and that “society will decide what to do next.”

According to documents linked by the Technology Review, the study was approved by the Medical Ethics Committee of Shenzhen HOME Women’s and Children’s Hospital. The summary on the Chinese Clinical Trial Registry also said the study’s execution time is between March 7, 2017 to March 7, 2019, and that it sought married couples living in China who met its health and age requirements and are willing to undergo IVF therapy. The research team wrote that their goal is to “obtain healthy children to avoid HIV providing new insights for the future elimination of major genetic diseases in early human embryos.”

A table attached to the trial’s listing on the Chinese Clinical Trial Registry said genetic tests have already been carried out on fetuses of 12, 19, and 24 weeks of gestational age, though it is unclear if those pregnancies included the one that resulted in the birth of the twin girls, whose parents wish to remain anonymous.

“I believe this is going to help the families and their children,” He told the AP, adding that if the study causes harm, “I would feel the same pain as they do and it’s going to be my own responsibility.”

Chinese scientists at Sun Yat-sen University in Guangzhou first edited the genes of a human embryo using CRISPR technology (the acronym stands for Clustered Regularly Interspaced Short Palindromic Repeats), which enables the removal of specific genes by acting as a very precise pair of “genetic scissors,” in 2015. Though other scientists, including in the United States, have conducted similar research since then, the Southern University of Science and Technology’s study is considered especially radical because of the ethical implications of CRISPR, which many scientists fear may be used to perpetuate eugenics or create “designer babies” if carried out on embryos meant to be carried to term.

As in the United States and many European countries, using a genetically-engineered embryo in a pregnancy is already prohibited in China, though the Technology Review points out that this guideline, which was issued to IVF clinics in 2003, may not carry the weight of the law.

In 2015, shortly after the Sun Yat-sen University experiment (which was conducted on embryos that were unviable because of chromosomal effects) became known, a meeting called by several groups, including the National Academy of Sciences of the United States, the Institute of Medicine, the Chinese Academy of Sciences and the Royal Society of London, called for a moratorium on making inheritable changes to the human genome.

In addition to ethical concerns, Fyodor Urnov, a gene-editing scientist and associate director of the Altius Institute for Biomedical Sciences, a nonprofit in Seattle, told the Technology Review that He’s study is cause for “regret and concern” because it may also overshadow progress in gene-editing research currently being carried out on adults with HIV.

TechCrunch has contacted He for comment at his university email.

China’s NIO invests in LiDAR startup Innovusion

Innovusion, a two-year-old startup developing LiDAR sensor technology for autonomous vehicles, has raised $30 million in a Series A funding round co-led by Chinese firms Nio Capital and Eight Roads Ventures along with U.S.-based F-Prime Capital.

Other seed round and strategic investors joined the round, the startup said.

Nio Capital is the venture arm of Nio, the Chinese electric automaker aiming to compete with Tesla. Nio, which raised $1 billion when it debuted on the New York Stock Exchange in September, has operations in the U.S., U.K. and Germany, although it only sells its ES8 vehicle in China.

Innovusion, which was founded in November 2016, says it will use the funding to scale up its operations, specifically to ramp up production of its light detection and ranging sensor system called Innovusion Cheetah. The company began shipping samples of the system in the second quarter of 2018 and is beginning to take customer orders.

The round of funding will allow the Los Altos, California-based company to expand its R&D team and manufacturing facilities to more quickly develop, market and deliver Innovusion Cheetah LiDAR to customers around the world, according to Junwei Bao, the company’s co-founder and CEO. The company primarily is targeting customers in China and the U.S.

LiDAR is used by companies developing autonomous vehicles to detect and measure objects on the road around them. Most of the companies testing AVs believe LiDAR is an essential sensor required to deploy self-driving vehicles safely on public roads. It’s what has propelled demand for LiDAR and, in turn, an array of startups to pop up and try capture market share away from Velodyne, the long-time dominant leader in the space.

Tesla to bring portion of Model 3 production to China next year

Tesla, which reported its first quarterly profits in two years Wednesday, is looking to extend its earnings streak by bringing its new Model 3 to customers beyond North America. And part of that plan involves accelerating its manufacturing plans in China.

Tesla saw its revenue skyrocket to $6.8 billion in the third quarter (and a $312 million profit) thanks to sales of its new Model 3 vehicle, despite production bottlenecks and more recent issues with delivery logistics. The company was able to achieve that profitability milestone just through sales in the U.S. and Canada. That leaves two other massive markets on the table. Cue Europe and China.

Tesla said Wednesday it will start to take orders for the Model 3 in Europe and China before the end of 2018. Tesla said it will begin deliveries of the Model 3 to Europe early next year.

“The mid-sized premium sedan market in Europe is more than twice as big as the same segment in the U.S.,” Tesla said in its shareholder letter released Wednesday. “This is why we are excited to bring Model 3 to Europe early next year.”

Notably, the company is further accelerating its timeline for China and said it will bring portions of Model 3 production to the country next year.

“We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing,” Tesla said in its earnings report. “Production in China will be designated only for local customers.”

Tesla said earlier this month it plans for as rapid build out of a factory in China. But there’s something new here. The term “portions of Model 3 production” is the important phrase. This could be referring to a term used in the manufacturing world known as a complete knock down. CKD is basically a kit of non-assembled parts of a product, like say a Model 3. It’s a strategy used to avoid tariffs when shipping to foreign countries.

Tesla has plans to build a factory in Shanghai, but construction hasn’t even begun yet.

The company secured in October rights to about 210 acres of land in Lingang, Shanghai, the site of the electric automaker’s planned factory and its first outside of the U.S.

Tesla warned in its production and delivery report in early October that tariffs, combined with the cost of shipping its vehicles via ocean carrier and the lack of access to cash incentives available to locally produced electric vehicles, has put the company at a disadvantage in China. Tesla reiterated those cost constraints in its third-quarter earnings report.

Tesla reached a deal in July with the Shanghai government to build a factory that it says will be capable of producing 500,000 electric vehicles a year. Once construction begins, it will take about two years until Tesla can produce vehicles. It will be another “two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers,” a Tesla spokesman said at the time.

Cryptocurrency wallet startup Cobo raises $13M Series A to enter the U.S. and Southeast Asia

Cobo, a cryptocurrency wallet startup headquartered in Beijing, has raised a $13 million Series A to enter new international markets. The round was led by DHVC and Wu Capital, a family office based in China. Cobo plans to expand in the United States and Southeast Asia, in particular Vietnam and Indonesia. Cobo is also now taking pre-orders for Cobo Vault, a hardware wallet (pictured above) that it claims is military grade. Cobo’s Series A brings its total funding to $20 million so far.

Cobo Wallet allows users to store both proof-of-stake and proof-of-work coins. One incentive for people to pick the app over its competitors is the ability to pool proof-of-stake assets with other users so they can increase their chances of mining and validating new blocks on the blockchain. Since launching earlier this year, Cobo says its digital wallet has gained more than 500,000 users.

The startup was founded last year by CEO Shixing Mao, who is known as Discus Fish in the crypto community, and CTO Changhao Jiang, a former platform engineer at Facebook and Google who co-founded Bihang, a cryptocurrency wallet acquired by OKCoin in 2013. Discus Fish, meanwhile, is known for launching F2Pool, China’s first mining pool.

Cobo Vault, which will retail for $479, meets the MIL-STD-810G U.S. military standard for equipment, Cobo’s head of hardware Lixin Liu said in an email, adding that it was built with proprietary firmware created especially for the device, a bank-grade encryption chip and military-grade aluminum.

Cobo Vault’s creation was prompted by an August 2017 incident in which F2Pool was hacked and more than 8,000 ETH was stolen from Discus Fish’s account. Fish also refunded customers’ lost ETH from his own assets. “As a result, Discus Fish was resolute on the fact that for crypto to gain mass market adoption, products had to be made to be hacker-resistant and truly safe,” said Liu.

Meituan-Dianping’s IPO off to a good start as shares climb 7% on debut

Meituan-Dianping (3690.HK) enjoyed a strong debut today in Hong Kong, a sign that investors are confident in the Tencent-backed company’s prospects despite its cash-burning growth strategy, heavy competition and a sluggish Hong Kong stock market.

During morning trading, Meituan’s shares reached a high of HKD$73.85 (about $9.41), a 7% increase over its initial public offering price of HKD$69. When Meituan reportedly set a target valuation of $55 billion for its debut, it triggered concerns that the company, which bills itself a “one-stop super app” for everything from food delivery to ticket bookings, as overconfident.

While Meituan, the owner of Mobile, is the leading online marketplace for services in China, it faces formidable competition from Alibaba’s Ele.me and operating on tight margins and heavy losses as it spends money on marketing and user acquisition costs. As it prepared for its IPO, Meituan was also under the shadow of underwhelming Hong Kong debuts by Xiaomi and China Tower. Like Xiaomi, Meituan is listed under a new dual-class share structure designed to attract tech companies by allowing them to give weighted voting rights to founders.

The sponsors of Meituan’s IPO are Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley.

North Korea skirts US sanctions by secretly selling software around the globe

Fake social media profiles are useful for more than just sowing political discord among foreign adversaries, as it turns out. A group linked to the North Korean government has been able to duck existing sanctions on the country by concealing its true identity and developing software for clients abroad.

This week, the US Treasury issued sanctions against two tech companies accused of running cash-generating front operations for North Korea: Yanbian Silverstar Network Technology or “China Silver Star,” based near Shenyang, China, and a Russian sister company called Volasys Silver Star. The Treasury also sanctioned China Silver Star’s North Korean CEO Jong Song Hwa.

“These actions are intended to stop the flow of illicit revenue to North Korea from overseas information technology workers disguising their true identities and hiding behind front companies, aliases, and third-party nationals,” Treasury Secretary Steven Mnuchin said of the sanctions.

As the Wall Street Journal reported in a follow-up story, North Korean operatives advertised with Facebook and LinkedIn profiles, solicited business with Freelance.com and Upwork, crafted software using Github, communicated over Slack and accepted compensation with Paypal. The country appears to be encountering little resistance putting tech platforms built by US companies to work building software including “mobile games, apps, [and] bots” for unwitting clients abroad.

The US Treasury issued its first warnings of secret North Korean software development scheme in July, though did not provide many details at the time. The Wall Street Journal was able to identify “tens of thousands” of dollars stemming from the Chinese front company, though that’s only a representative sample. The company worked as a middleman, contracting its work out to software developers around the globe and then denying payment for their services.

Facebook suspended many suspicious accounts linked to the scheme after they were identified by the Wall Street Journal, including one for “Everyday-Dude.com”:

“A Facebook page for Everyday-Dude.com, showing packages with hundreds of programs, was taken down minutes later as a reporter was viewing it. Pages of some of the account’s more than 1,000 Facebook friends also subsequently disappeared…

“[Facebook] suspended numerous North Korea-linked accounts identified by the Journal, including one that Facebook said appeared not to belong to a real person. After it closed that account, another profile, with identical friends and photos, soon popped up.”

Linkedin and Upwork similarly removed accounts linked to the North Korean operations.

Beyond the consequences for international relations, software surreptitiously sold by the North Korean government poses considerable security risks. According to the Treasury, the North Korean government makes money off of a “range of IT services and products abroad” including “website and app development, security software, and biometric identification software that have military and law enforcement applications.” For companies unwittingly buying North Korea-made software, the potential for malware that could give the isolated nation eyes and ears beyond its borders is high, particularly given that the country has already demonstrated its offensive cyber capabilities.

Between that and sanctions against doing business with the country, Mnuchin urges the information technology industry and other businesses to exercise awareness of the ongoing scheme to avoid accidentally contracting with North Korea on tech-related projects.

Alibaba announces CEO Daniel Zhang will succeed Jack Ma as chairman next year

Following speculation about Jack Ma’s imminent retirement, Alibaba Group announced today that its CEO, Daniel Zhang, will succeed Ma as chairman next year. After stepping down as chairman on September 10, 2019 (exactly a year from now), Ma will continue serving as a board member until its annual general shareholders’ meeting in 2020.

After that, Ma will remain a lifetime partner of the Alibaba Partnership, or a group of 36 partners drawn from the senior management ranks of Alibaba Group companies and affiliates. They hold a considerable amount of sway over the company because they have the right to nominate, or in certain situations, appoint up to a simple majority of its board of directors.

Alibaba’s announcement follows reports that Ma’s retirement from the company he co-founded in 1999 as an online marketplace was imminent, with Ma, a former English teacher, planning to dedicate his time to philanthropy in education. Ma downplayed those reports, however, telling the South China Morning Post (which is owned by Alibaba) that instead he will gradually reduce his role in the company through a succession plan.

Ma stepped down as CEO in 2013, handing the position over to Jonathan Lu. Lu was replaced in 2015 by Zhang, Alibaba’s former COO, after Ma reportedly told employees that it’s time for the company to be run by people born in the 1970s and after (Zhang was born in 1972, three years after Lu).

In a letter sent to media outlets today, Ma wrote that Zhang has “demonstrated his superb talent, business acumen and determined leadership” since taking over as CEO. Under his stewardship, Alibaba has seen consistent and sustainable growth for 13 consecutive quarters. His analytical mind is unparalleled, he holds dear our mission and vision, he embraces responsibility with passion, and he has the guts to innovate and test creative business models.”

Ma added that “this transition demonstrates that Alibaba has stepped up to the next level of corporate governance from a company that relies on individuals, to one built on systems of organizational excellence and a culture of talent development.”

Ma also re-emphasized his narrative that his departure from Alibaba Group will be very gradual. “I have put a lot of thought and preparation into this succession plan for 10 years. I am delighted to announce the plan today thanks to the support of the Alibaba Partnership and our board of directors,” he wrote. “I also want to offer special thanks to all Alibaba colleagues and your families, because your trust, support and our joint enterprise over the past 19 years have prepared us for this day with confidence and strength.”

Of his plans after Zhang takes over as chairman next year, Ma said he will continue contributing to the Alibaba Partnership, before adding “I also want to return to education, which excites me with so much blessing because this is what I love to do. The world is big, and I am still young, so I want to try new things – because what if new dreams can be realized?! The one thing I can promise everyone is this: Alibaba was never about Jack Ma, but Jack Ma will forever belong to Alibaba.”

China announces transportation industry reform, days after murder of Didi carpooling passenger

The Chinese government announced it will reform the transportation industry to safeguard passengers, three days after a female passenger was allegedly raped and murdered by a Didi Chuxing driver last Friday. Provinces and autonomous regions are now tasked with setting up passenger safety committees by the end of this month and ensuring that incidents are investigated promptly.

The crime led to the suspension of Hitch, Didi Chuxing’s carpooling service, and the firing of two executives: Hitch’s general manager and Didi’s vice president of customer services. This is not the first time, however, that Didi has been forced pull back on Hitch. Earlier this year, it suspended night operations after a female passenger was allegedly murdered by an unregistered driver who had accessed the service using his father’s account. Nighttime Hitch rides then resumed in June after Didi put new safety measures in place, including a rule that prohibited drivers from accepting ride requests by passengers of the opposite sex during certain hours.

The latest incident took place on Friday in the eastern province of Zhejiang and is especially concerning because the driver had been flagged just one day before the murder by another female passenger who complained that he followed her after she left his vehicle. In a statement, Didi said a safety center representative failed to follow corporate policy and initiate an investigation within two hours. The company also admitted that its customer service procedures has “many deficiencies” and said it will “plead for law enforcement and the public to work with us in developing more efficient and practical collaborative solutions to fight criminals and protect user personal and property safety.”

China’s police and transport ministries have already said that Didi bears “unshirkable responsibility” for Friday’s murder. The company has already been accused of being too lax with passenger safety, leaving its users–particularly women–vulnerable to sexual harassment and assault.

What stunned me while reporting this was the numbers. According to Southern Weekly, at least 53 women have been raped or sexually harassed by Didi drivers in the past 4 yrs?! Caixin says there are 14 rapes linked to Didi drivers, citing court docs. https://t.co/Me0oBXRyxo

— Sui-Lee Wee 黄瑞黎 (@suilee) August 27, 2018

The National Development and Reform Commission (NDRC), the agency that enacts strategies for China’s economic and social development, posted its announcement, titled “Concerning untrustworthy behavior in the emerging transportation sector,” online on Monday morning.

In it, the NDRC said it will put measures into place to root out untrustworthy and dishonest operators in China’s transportation industry, which has grown dramatically over the past two decades. Provinces and autonomous regions must form committees and procedures to ensure passenger safety by August 31 and share information about violations and offenders with other municipalities.

While the NDRC mentioned all transportation sectors, including railways, airplanes and ships, it singled out passenger vehicles, including buses, shuttles and cabs, in one passage and ordered municipalities to investigate offenses in a timely manner. Operators that don’t take action quickly to fix “untrustworthy behavior” risk being placed on a blacklist and having their names published on government websites.

Australia bans Huawei and ZTE from supplying technology for its 5G network

Australia has blocked Huawei and ZTE from providing equipment for its 5G network, which is set to launch commercially next year. In a tweet, Huawei stated that the Australian government told the company that both it and ZTE are banned from supplying 5G technology to the country, despite Huawei’s assurances that it does not pose a threat to national security.

We have been informed by the Govt that Huawei & ZTE have been banned from providing 5G technology to Australia. This is a extremely disappointing result for consumers. Huawei is a world leader in 5G. Has safely & securely delivered wireless technology in Aust for close to 15 yrs

— Huawei Australia (@HuaweiOZ) August 22, 2018

Earlier today, the Australian government issued new security guidelines for 5G carriers. Although it did not mention Huawei, ZTE or China specifically, it did strongly hint at them by stating “the Government considers that the involvement of vendors who are likely to be subject to extrajudicial directions from foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorized access or interference.”

Concerns that Huawei, ZTE and other Chinese tech companies will be forced to comply with a new law, passed last year, that obligates all Chinese organizations and citizens to provide information to national intelligence agencies when asked have made several countries wary of using their technology. Earlier this month, the United States banned the use of most Huawei and ZTE technology by government agencies and contractors, six years after a Congressional report first cited the two companies as security threats.

In its new security guidelines, the Australian government stated that differences in the way 5G operates compared to previous network generations introduces new risks to national security. In particular, it noted the diminishing distinctions between the core network, where more sensitive functions like access control and data routing occur, and the edge, or radios that connect customer equipment, like laptops and mobile phones, to the core.

“This new architecture provides a way to circumvent traditional security controls by exploiting equipment in the edge of the network – exploitation which may affect overall network integrity and availability, as well as the confidentiality of customer data. A long history of cyber incidents shows cyber actors target Australia and Australians,” the guidelines stated. “Government has found no combination of technical security controls that sufficiently mitigate the risks.”

Last year, Australia introduced the Telecommunications Sector Security Reforms (TSSR), which takes effect next month and directs carriers and telecommunication service providers to protect their networks and infrastructure from national security threats and also notify the government of any proposed changes that may compromise the security of their network. It also gives the government the power to “intervene and issue directions in cases where there are significant national security concerns that cannot be addressed through other means.”

Huawei’s Australian chairman John Lord said in June that the company had received legal advice that its Australian operations are not bound to Chinese laws and he would refuse to hand over any data to the Chinese government in breach of Australian law. Lord also argued that banning Huawei could hurt local businesses and customers by raising prices and limiting access to technology.

TechCrunch has contacted ZTE and Huawei for comment.

LinkedIn’s China rival Maimai raises $200M ahead of planned US IPO

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China.

Maimai, China’s biggest rival to LinkedIn, has revealed today that it received a $200 million D Series investment back in April in what the company claims to be the largest investment in the professional networking market. That’s surprising but correct: LinkedIn went public in 2011 and was bought by Microsoft for $26 million in 2016, but it raised just over $150 million from investors as a private company.

Global venture capital DST led the round for Maimai which include participation from existing investors of IDG, Morningside Venture Capital, and DCM.

The new capital takes Maimai to $300 million raised from investors, according to CrunchbaseCaixin reports that the valuation of the company is more than $1 billion which would see the firm enter the global unicorn club.

Beyond the fundraising, the firm said it plans to invest RMB 1 billion (around $150 million) over the next three years in a career planning program that it launched in partnership with over 1,000 companies. Those partners include global top-500 firm Cisco and Chinese companies such as Fashion Group and Focus Media.

This investment could be the last time Maimai taps the private market for cash. That’s because the company is gearing up for a U.S. IPO and overseas expansion in the second half of 2019, according to the company founder and CEO Lin Fan.

Launched in the fall of 2013, Maimai aims particularly at business people as a platform to connect professional workers and offer employment opportunities. The service now claims over 50 million users. As a Chinese counterpart of LinkedIn, Maimai has competed head-on with Chinese arm of the U.S. professional networking giant since its establishment and gradually gained an upper hand with features tailored to local tastes.

maimai

It can be hard to gauge the population of social networks, but Chinese market research firm iResearch ranked Maimai ahead of LinkedIn for the first time in the rankings of China’s most popular social networking apps in April last year. The firm further gained ground this year as its user penetration rate reaching 83.8 percent in June, far higher than LinkedIn China’s 11.8 percent, according to data from research institute Analysys.

As a China-born company, Maimai gained momentum over the past two years with localized features, such as anonymous chat, mobile-first design, real-name registration, and partnerships with Chinese corporations. But like all Chinese tech services, it is subject to the state’s tight online regulation. The government watchdog has ordered Maimai to remove the anonymous posting section on its platform last month. The same issue applies to LinkedIn, which has been criticized for allowing its Chinese censorship to spill over and impact global users.

With assistance from Jon Russell

Cootek, the Chinese maker of TouchPal keyboard, files for $100M US IPO

Cootek, the Chinese mobile internet company best known for keyboard app TouchPal, has filed for a public offering in the United States. In its F-1 form, submitted last week to the Securities and Exchange Commission, Cootek said it wants to raise up to $100 million.

The Shanghai-based company began operating in 2008, when TouchPal was launched, and incorporated as CooTek in March 2012. In its SEC filing, Cootek said it currently has 132 million daily active users, with average DAUs increasing 75% year-over-year as of June. It also said it achieved 453% total ad revenue growth in the six month period before June.

While AI-based TouchPal, which offers glide typing and predictive text, is Cootek’s most popular product, it also has 15 other apps in its portfolio, including fitness apps HiFit and ManFIT and a virtual assistant called Talia. The company uses its proprietary AI and big data technology to analyze language data collected from users and the Internet. Then it uses those insights to develop lifestyle, healthcare and entertainment apps. Together, those 15 apps reached an average of 22.2 million monthly average users and 7.3 million daily average users in June.

TouchPal itself had 125.4 million daily average users in June 2018, with active users launching the app an average of 72 times a day. It currently supports 110 languages.

Most of Cootek’s revenue comes from mobile advertising. It says net revenue grew from $11 million in 2016 to $37.3 million in 2017, or 238.5% year-over-year, while its net loss dropped from $30.7 million in 2016 to $23.7 million in 2017. It achieved net income of $3.5 million for the six months ending in June, compared to a net loss of $16.2 million in the same period a year ago.

Cootek plans to be listed under the ticker symbol CTK on the New York Stock Exchange and will use the IPO’s proceeds to grow its user base, invest in AI and natural language processing tech and improve advertising performance. The offering will be underwritten by underwritten by Credit Suisse, BofA Merrill Lync and Citi.

Walmart co-leads $500M investment in Chinese online grocery service Dada-JD Daojia

Walmart sold its China-based e-commerce business in 2016, but the U.S. retail giant is very much involved in the Chinese internet market through a partnership with e-commerce firm JD.com. Alibaba’s most serious rival, JD scooped up Walmart’s Yihaodian business and offered its own online retail platform to help enable Walmart to products in China, both on and offline.

Now that relationship is developing further after Walmart and JD jointly invested $500 million into Dada-JD Daojia, an online-to-offline grocery business which is part owned by JD, according to a CNBC report.

Unlike most grocery delivery services, though, Dada-JD Daojia stands apart because it includes a crowdsourced element.

The business was formed following a merger between JD Daojia, JD’s platform for order from supermarkets online which has 20 million monthly users, and Daojia, which uses crowdsourcing to fulfill deliveries and counts 10 million daily deliveries. JD Daojia claims over 100,000 retail stores and its signature is one-hour deliveries for a range of products, which include fruit, vegetables and groceries.

Walmart is already part of the service — it has 200 stores across 30 Chinese cities on the Dada-JD Daojia service; as well as five online stores on the core JD.com platform — and now it is getting into the business itself via this investment.

JD.com said the deal is part of its ‘Borderless Retail’ strategy, which includes staff-less stores and retail outlets that mix e-commerce with physical sales.

“The future of global retail is boundaryless. There will be no separation between online and offline shopping, only greater convenience, quality and selection to consumers. JD was an early investor in Dada-JD Daojia, and continues its support, because we believe that its innovations will be an important part of realizing that vision,” said Jianwen Liao, Chief Strategy Officer of JD.com, in a statement.

Alibaba, of course, has a similar hybrid strategy with its Hema stores and food delivery service Ele.me, all of which links up with its Taobao and T-Mall online shopping platforms. The company recently scored a major coup when it landed a tie-in with Starbucks, which is looking to rediscover growth in China through an alliance that will see Ele.me deliver coffee to customers and make use of Hema stores.

Away from the new retail experience, JD.com has been doing more to expand its overseas presence lately.

The company landed a $550 million investment from Google this summer which will see the duo team up to offer JD.com products for sale on the Google Shopping platform across the world. Separately, JD.com has voiced intention to expand into Europe, starting in Germany, and that’s where the Google deal and a relationship with Walmart could be hugely helpful.

Another strategic JD investor is Tencent, and that relationship has helped the e-commerce firm sell direct to customers through Tencent’s WeChat app, which is China’s most popular messaging service. Tencent and JD have co-invested in a range of companies in China, such as discount marketplace Vipshop and retail group Better Life. Their collaboration has also extended to Southeast Asia, where they are both investors in ride-hailing unicorn Go-Jek, which is aiming to rival Grab, the startup that bought out Uber’s local business.

Starbucks partners with Alibaba on coffee delivery to boost China business

Starbucks is palling up with Alibaba as it seeks to rediscover growth for its business in China.

China has been a bright spot for some time for the U.S. coffee giant, but lately it has struggled to maintain growth — its China business dragged on its Q3 financials — and it is up against some ambitious new rivals, including billion-dollar startup Luckin Coffee.

One-year-old Luckin recently raised $200 million from investors and it has already built quite a presence. It claims over 500 outlets across China and it taps into the country’s mobile trends, with mobile payments and orders and delivery, too. Then there are some deep discounts aimed at getting new users, as is common with food, cars and other on-demand services.

In response, Starbucks is injecting some of that ‘New Retail’ strategy into its own China presence — and it is doing so with none other than Alibaba, the company that coined the phrase, which signifies a marriage between online and offline commerce.

The partnership between Alibaba and Starbucks is wide-ranging and it will cover delivery, a virtual store and collaboration on Alibaba’s “new retail” Hema stores.

The delivery piece is perhaps most obvious, and it’ll see Starbucks work with Ele.me, the $9.5 billion food delivery platform owned by Alibaba, to allow customers to order and receive coffee without visiting a store. The service will start in September in Beijing and Shanghai, with plans to expand to 30 cities and over 2,000 stores by the end of this year.

Starbucks is also building its app into Alibaba’s array of e-commerce sites, including its Tmall brand e-mall and Taobao marketplace. That’s a move that Starbucks President and CEO Kevin Johnson told CNBC would operate “similar to the mobile app embedded right into that experience” and open Starbucks up to Alibaba’s 500 million-plus users.

Finally, Starbucks is bringing its own “Starbucks Delivery Kitchens” to Alibaba’s Hema stores, which feature robots and mobile-based orders, that will combine Starbucks stores to boost its delivery capacity and speed.

Starbucks, as mentioned, needed a boost in China but the deal is also a major coup for Alibaba, which is battling JD.com on the new retail front as well as ambitious on-demand service Meituan. The latter is reported to have recently filed for an IPO in Hong Kong that could raise it $4 billion.

WeWork China raises $500M to triple the number of cities it covers

WeWork’s China business is getting a fresh injection of capital after it raised $500 million.

The company entered China two years ago and today it covers Beijing, Shanghai and Chengdu with nearly 40 locations. It claims 20,000 members, and it is also active in Hong Kong, which technically falls under ‘Greater China.’

The new capital comes from Trustbridge Partners, Singapore’s Temasek, SoftBank, SoftBank’s Vision Fund and Hony Capital. WeWork said it’ll be used for expansion into six new cities: those are Shenzhen, Suzhou, Hangzhou, Chengdu, Nanjing, and Wuhan. This new raise is a Series B, WeWork China previously scored a $500 million Series A last year, which was also when the Chinese entity was founded.

The company has been pretty busy over that 12-month period, most notably it scooped up its largest rival, Naked Hub, in an acquisition deal that is worth a reported $400 million and massively grew its reach.

Naked Hub builds on WeWork’s presence in Greater China by adding 24 office locations and a further 10,000 members. That’s why WeWork China’s figures are so impressive for just two years of operations. Now, this new capital will put WeWork’s own DNA into that network through this planned expansion spree.

“This investment will help WeWork fuel our mission to support creators, small businesses, and large companies across China,” WeWork CEO and co-founder Adam Neumann said in a statement. “WeWork has built an incredible team in China that supports our members every day, serving as a bridge for local companies who want to reach the world as well as for global companies that want to enter the Chinese market.”

Outside of China, WeWork is also making inroads in India — where it launched in 2017 — Korea, Japan (where it operates a joint venture with SoftBank) and Southeast Asia, where it made an acquisition to kick-start its presence. Indeed, WeWork has a float of around $500 million for its operations in Southeast Asia and Korea, although the total pot for India is unknown at this point.

WeWork China’s big raise comes days after Hong Kong’s Campfire pulled in $18 million and Awfis in India raised $20 million.

Apple’s iCloud user data in China is now handled by a state-owned mobile operator

If you’re an Apple customer living in China who didn’t already opt out of having your iCloud data stored locally, here’s a good reason to do so now. That information, the data belonging to China-based iCloud users which includes emails and text messages, is now being stored by a division of China Telecom, the state-owned telco.

The operator’s Tianyi cloud storage business unit has taken the reins for iCloud China, according to a WeChat post from China Telecom. Apple separately confirmed the change to TechCrunch.

Apple’s transition of the data from its own U.S.-based servers to local servers on Chinese soil has raised significant concern among observers who worry that the change will grant the Chinese government easier access to sensitive information. Before a switch announced earlier this year, all encryption keys for Chinese users were stored in the U.S. which meant authorities needed to go through the U.S. legal system to request access to information. Now the situation is based on Chinese courts and a gatekeeper that’s owned by the government.

Apple itself has said it was compelled to make the move in order to comply with Chinese authorities, and that hardly eases the mind.

It’s ironic that the U.S. government has pursued Chinese telecom equipment maker ZTE on account of national security and suspected links to Chinese authorities, and yet one of America’s largest corporates is entrusting user data to a state-owned company in China.

The only plus for Apple users in China is that they can opt out of local data storage by selecting a country other than China for their iCloud account. Since it isn’t clear whether making that change today would see information migrated or deleted from the Chinese server, starting over with a new account is probably the best option at this point.

Hat tip @yuanfenyang

3D printed guns are now legal… What’s next?

Jon Stokes
Contributor

Jon Stokes is one of the founders of Ars Technica, an author, and a former Wired editor. He currently hacks ruby at Collective Idea, and runs AllOutdoor.com.

On Tuesday, July 10, the DOJ announced a landmark settlement with Austin-based Defense Distributed, a controversial startup led by a young, charismatic anarchist whom Wired once named one of the 15 most dangerous people in the world.

Hyper-loquacious and media-savvy, Cody Wilson is fond of telling any reporter who’ll listen that Defense Distributed’s main product, a gun fabricator called the Ghost Gunner, represents the endgame for gun control, not just in the US but everywhere in the world. With nothing but the Ghost Gunner, an internet connection, and some raw materials, anyone, anywhere can make an unmarked, untraceable gun in their home or garage. Even if Wilson is wrong that the gun control wars are effectively over (and I believe he is), Tuesday’s ruling has fundamentally changed them.

At about the time the settlement announcement was going out over the wires, I was pulling into the parking lot of LMT Defense in Milan, IL.

LMT Defense, formerly known as Lewis Machine & Tool, is as much the opposite of Defense Distributed as its quiet, publicity-shy founder, Karl Lewis, is the opposite of Cody Wilson. But LMT Defense’s story can be usefully placed alongside that of Defense Distributed, because together they can reveal much about the past, present, and future of the tools and technologies that we humans use for the age-old practice of making war.

The legacy machine

Karl Lewis got started in gunmaking back in the 1970’s at Springfield Armory in Geneseo, IL, just a few exits up I-80 from the current LMT Defense headquarters. Lewis, who has a high school education but who now knows as much about the engineering behind firearms manufacturing as almost anyone alive, was working on the Springfield Armory shop floor when he hit upon a better way to make a critical and failure-prone part of the AR-15, the bolt. He first took his idea to Springfield Armory management, but they took a pass, so he rented out a small corner in a local auto repair ship in Milan, bought some equipment, and began making the bolts, himself.

Lewis worked in his rented space on nights and weekends, bringing the newly fabricated bolts home for heat treatment in his kitchen oven. Not long after he made his first batch, he landed a small contract with the US military to supply some of the bolts for the M4 carbine. On the back of this initial success with M4 bolts, Lewis Machine & Tool expanded its offerings to include complete guns. Over the course of the next three decades, LMT grew into one of the world’s top makers of AR-15-pattern rifles for the world’s militaries, and it’s now in a very small club of gunmakers, alongside a few old-world arms powerhouses like Germany’s Heckler & Koch and Belgium’s FN Herstal, that supplies rifles to US SOCOM’s most elite units.

The offices of LMT Defense, in Milan, Ill. (Image courtesy Jon Stokes)

LMT’s gun business is built on high-profile relationships, hard-to-win government contracts, and deep, almost monk-like know-how. The company lives or dies by the skill of its machinists and by the stuff of process engineering — tolerances and measurements and paper trails. Political connections are also key, as the largest weapons contracts require congressional approval and months of waiting for political winds to blow in this or that direction, as countries to fall in and out of favor with each other, and paperwork that was delayed due to a political spat over some unrelated point of trade or security finally gets put through so that funds can be transfered and production can begin.

Selling these guns is as old-school a process as making them is. Success in LMT’s world isn’t about media buys and PR hits, but about dinners in foreign capitals, range sessions with the world’s top special forces units, booths at trade shows most of us have never heard of, and secret delegations of high-ranking officials to a machine shop in a small town surrounded by corn fields on the western border of Illinois.

The civilian gun market, with all of its politics- and event-driven gyrations of supply and demand, is woven into this stable core of the global military small arms market the way vines weave through a trellis. Innovations in gunmaking flow in both directions, though nowadays they more often flow from the civilian market into the military and law enforcement markets than vice versa. For the most part, civilians buy guns that come off the same production lines that feed the government and law enforcement markets.

All of this is how small arms get made and sold in the present world, and anyone who lived through the heyday of IBM and Oracle, before the PC, the cloud, and the smartphone tore through and upended everything, will recognize every detail of the above picture, down to the clean-cut guys in polos with the company logo and fat purchase orders bearing signatures and stamps and big numbers.

The author with LMT Defense hardware.

Guns, drugs, and a million Karl Lewises

This is the part of the story where I build on the IBM PC analogy I hinted at above, and tell you that Defense Distributed’s Ghost Gunner, along with its inevitable clones and successors, will kill dinosaurs like LMT Defense the way the PC and the cloud laid waste to the mainframe and microcomputer businesses of yesteryear.

Except this isn’t what will happen.

Defense Distributed isn’t going to destroy gun control, and it’s certainly not going to decimate the gun industry. All of the legacy gun industry apparatus described above will still be there in the decades to come, mainly because governments will still buy their arms from established makers like LMT. But surrounding the government and civilian arms markets will be a brand new, homebrew, underground gun market where enthusiasts swap files on the dark web and test new firearms in their back yards.

The homebrew gun revolution won’t create a million untraceable guns so much as it’ll create a hundreds of thousands of Karl Lewises — solitary geniuses who had a good idea, prototyped it, began making it and selling it in small batches, and ended up supplying a global arms market with new technology and products.

In this respect, the future of guns looks a lot like the present of drugs. The dark web hasn’t hurt Big Pharma, much less destroyed it. Rather, it has expanded the reach of hobbyist drugmakers and small labs, and enabled a shadow world of pharmaceutical R&D that feeds transnational black and gray markets for everything from penis enlargement pills to synthetic opioids.

Gun control efforts in this new reality will initially focus more on ammunition. Background checks for ammo purchases will move to more states, as policy makers try to limit civilian access to weapons in a world where controlling the guns themselves is impossible.

Ammunition has long been the crack in the rampart that Wilson is building. Bullets and casings are easy to fabricate and will always be easy to obtain or manufacture in bulk, but powder and primers are another story. Gunpowder and primers are the explosive chemical components of modern ammo, and they are difficult and dangerous to make at home. So gun controllers will seize on this and attempt to pivot to “bullet control” in the near-term.

Ammunition control is unlikely to work, mainly because rounds of ammunition are fungible, and there are untold billions of rounds already in civilian hands.

In addition to controls on ammunition, some governments will also make an effort at trying to force the manufacturers of 3D printers and desktop milling machines (the Ghost Gunner is the latter) to refuse to print files for gun parts.

This will be impossible to enforce, for two reasons. First, it will be hard for these machines to reliably tell what’s a gun-related file and what isn’t, especially if distributors of these files keep changing them to defeat any sort of detection. But the bigger problem will be that open-source firmware will quickly become available for the most popular printing and milling machines, so that determined users can “jailbreak” them and use them however they like. This already happens with products like routers and even cars, so it will definitely happen with home fabrication machines should the need arise.

Ammo control and fabrication device restrictions having failed, governments will over the longer term employ a two-pronged approach that consists of possession permits and digital censorship.

Photo courtesy of Getty Images: Jeremy Saltzer / EyeEm

First, governments will look to gun control schemes that treat guns like controlled substances (i.e. drugs and alchohol). The focus will shift to vetting and permits for simple possession, much like the gun owner licensing scheme I outlined in Politico. We’ll give up on trying to trace guns and ammunition, and focus more on authorizing people to possess guns, and on catching and prosecuting unauthorized possession. You’ll get the firearm equivalent of a marijuana card from the state, and then it won’t matter if you bought your gun from an authorized dealer or made it yourself at home.

The second component of future gun control regimes will be online suppression, of the type that’s already taking place on most major tech platforms across the developed world. I don’t think DefCad.com is long for the open web, and it will ultimately have as hard a time staying online as extremist sites like stormfront.org.

Gun CAD files will join child porn and pirated movies on the list of content it’s nearly impossible to find on big tech platforms like Facebook, Twitter, Reddit, and YouTube. If you want to trade these files, you’ll find yourself on sites with really intrusive advertising, where you worry a lot about viruses. Or, you’ll end up on the dark web, where you may end up paying for a hot new gun design with a cryptocurrency. This may be an ancap dream, but won’t be mainstream or user-friendly in any respect.

As for what comes after that, this is the same question as the question of what comes next for politically disfavored speech online. The gun control wars have now become a subset of the online free speech wars, so whatever happens with online speech in places like the US, UK, or China will happen with guns.

The U.S. and ZTE reach a deal that will lift export ban

The United States government has made a deal with Chinese telecommunications giant ZTE that, once completed, will lift the ban preventing the company from working with American suppliers. The agreement eases tensions in the U.S.-China trade war because the seven-year denial order, which the Trump administration imposed in April after ZTE violated sanctions against North Korea and Iran, was a major point of contention between the two countries.

Our statement on #ZTE and the escrow agreement: pic.twitter.com/w0Bbej1mAU

— U.S. Commerce Dept. (@CommerceGov) July 11, 2018

According to a statement from the Commerce Department, once ZTE completes a $400 million escrow payment, the department’s Bureau of Industry and Security (BIS) will lift the ban. The Commerce Department says “the ZTE settlement represents the toughest penalty and strictest compliance regime the Department has ever imposed in such a case. It will deter future bad actors and ensure the Department is able to protect the United States from those that would do us harm.”

Many U.S. lawmakers are still concerned about the security repercussions of the deal, however, and a bipartisan group of senators introduced legislation last week that could potentially restore some of the penalties imposed on ZTE.

The denial order was imposed because the Commerce Department claimed that ZTE violated U.S. laws against selling equipment containing American technology to Iran and North Korea, and not only failed to follow the terms of a 2017 agreement with the Department of Justice, but also lied to the U.S. The ban cut off access to several of ZTE’s key suppliers, including Qualcomm, and was severe enough that it was described as a “death penalty” for the company, which reportedly expected to lose $3 billion as a result.

But ZTE quickly became a pawn in the U.S-China trade wars and the Trump administration said in May that the company could continue buying from U.S. suppliers if it paid a fine of at least $1.3 billion and replaced its senior management and board. ZTE’s new management team was put into place last week, with new CEO Xu Ziyang promising stronger compliance procedures.

Aspire Capital offers fast finance for SMEs in Southeast Asia

Southeast Asia’s digital economy is tipped to grow more than six-fold to reach more than $200 billion per year, according to a report co-authored by Google, with e-commerce accounting for the dominant share. The emergence of e-commerce platforms like Alibaba’s Lazada and U.S.-listed Shopee have enabled online entrepreneurship across the region, but still financial support for online sellers, who are basically SMEs, is lagging.

That’s where Singapore-based Aspire Capital, a six-month-old organization focused on speedy SME lending, is hoping to make a difference.

The company certainly has opportunity. With a cumulative population of over 600 million consumers and a rising middle class, Southeast Asia is increasingly an attractive market for businesses of all kind, and online companies in particular. Chinese giants Alibaba and Tencent have long devoted significant resources to the region where, like India, they see significant growth potential. E-commerce is the clear winner, in terms of size, with the e-Conomy SEA report — a joint research project between Google and Singapore sovereign fund Temasek — forecasting e-commerce revenue will hit $88 billion by 2025 from $10.9 billion in 2017.

Data from the e-Conomy SEA report

The crux of its problem is that online sellers who use Lazada, Shopee or other platforms that are forgoing profit in order to grow, are ironically less able to scale their business since there are few ‘e-commerce friendly’ financing options.

That problem became apparent to Aspire founder and CEO Andrea Baronchelli during a four-year stint with Lazada Singapore where, as CMO, he identified a financing disconnect for Lazada merchants.

“I saw the problem while trying to rally small businesses trying to grow in the digital economy,” Baronchelli told TechCrunch in an interview.

“The problem is really about providing working capital to small business owners. We started with online sellers, but we have expanded a bit as we see demand. There are 65 million small businesses in Southeast Asia, that’s ten times more than the U.S. so we see so much potential,” he added.

Aspire founder and CEO Andrea Baronchelli pictured while at Lazada

Today, Aspire Capital covers Singapore where it has expanded beyond e-commerce merchants to cover other things of SMEs who seek loans, primarily for working capital as Baronchelli explains. So far, he added, it has served loans to over 100 businesses. Typically, its spread goes from as low as SG$5,000 to up to SG$100,000, that’s around $3,600-$73,500 in U.S. terms.

The company was founded in early 2018 and already it has done plenty. It was part of the Y Combinator Winter 2018 cohort and it has closed a $9 million seed round to kick its business off with the working capital that it needs itself.

That round included a range of investors such as Europe-based Hummingbird, New York’s Mark II Capital, ex-Sequoia partner Yinglan Tan’s Insignia Ventures Partners and Y Combinator.

The principle behind the business is to make business financing quick and simple, Baronchelli said.

So rather than stacks of paperwork, SME owners fill out online forms and get a response the same day. Large parts of the application and review process are automated using a proprietary risk assessment engine, but Baronchelli said that ultimately a human makes the final call on whether to accept the application or not.

“We want to really be fast,” Baronchelli explained. “SMEs need quick decisions, they cannot wait three months for a bank. They need super quick, fast and no paperwork.”

The application process for companies seeking loans from Aspire Capital

He paints an example of online merchants who typically buy inventory from China which is sold customers within three to six months. If the business has a track record, it can take a loan to increase its stock and grow its revenues and profit, he explained.

Singapore may be a key market in Southeast Asia, but with a population of just over five million expansion is top of mind for Aspire. Baronchelli said he is doing due diligence on the first market expansion which he expects will happen before the end of this year. He expects that the business will raise further capital, perhaps towards the tail end of this year, which would be used to expand more aggressively across Southeast Asia in 2019.

He is also occupied building out the team. Right now, Aspire has ten people but he is keen to bring in ten to fifteen more staff, particularly on the tech side of the business.

Google makes $550M strategic investment in Chinese e-commerce firm JD.com

Google has been increasing its presence in China in recent times, and today it has continued that push by agreeing to a strategic partnership with e-commerce firm JD.com which will see Google purchase $550 million of shares in the Chinese firm.

Google has made investments in China, released products there and opened up offices that include an AI hub, but now it is working with JD.com largely outside of China. In a joint release, the companies said they would “collaborate on a range of strategic initiatives, including joint development of retail solutions” in Europe, the U.S. and Southeast Asia.

The goal here is to merge JD.com’s experience and technology in supply chain and logistics — in China, it has opened warehouses that use robots rather than workers — with Google’s customer reach, data and marketing to produce new kinds of online retail.

Initially, that will see the duo team up to offer JD.com products for sale on the Google Shopping platform across the word, but it seems clear that the companies have other collaborations in mind for the future.

JD.com is valued at around $60 billion, based on its NASDAQ share price, and the company has partnerships with the likes of Walmart and it has invested heavily in automated warehouse technology, drones and other ‘next-generation’ retail and logisitics.

The move for a distribution platform like Google to back a service provider like JD.com is interesting since the company, through search and advertising, has relationships with a range of e-commerce firms including JD.com’s arch rival Alibaba.

But it is a sign of the times for Google, which has already developed relationships with JD.com and its biggest backer Tencent, the $500 billion Chinese internet giant. All three companies have backed Go-Jek, the ride-hailing challenger in Southeast Asia, while Tencent and Google previously inked a patent sharing partnership and have co-invested in startups such as Chinese AI startup XtalPi.

China’s Didi Chuxing continues its international expansion with Australia launch

Didi Chuxing, China’s dominant ride-hailing company, is continuing its international expansion after it announced plans to launch in Australia this month.

The company — which bought Uber’s China business in 2016 — said it will begin serving customers in Melbourne from June 25 following a month-long trial period in Geelong, a neighboring city that’s 75km away. The business will be run by a Didi subsidiary in Australia and it plans to offer “a series of welcome packages to both drivers and riders” — aka discounts and promotions, no doubt. It began signing up drivers on June 1, the company added.

The Australia launch will again put Didi in direct competition with Uber, but that is becoming increasingly common, and also Ola and Didi which both count Didi as an investor — more on that below. This move follows forays into Taiwan, Mexico and Brazil this year as Didi has finally expanded beyond its China-based empire.

Didi raised $4 billion in December to develop AI, general technology and to fund international expansion and it has taken a variety of routes to doing the latter. This Australia launch is organic, with Didi developing its own team, while in Taiwan it has used a franchise model and it went into Brazil via acquisition, snapping up local Uber-rival 99 at a valuation of $1 billion.

It is also set to enter Japan where it has teamed up with investor SoftBank on a joint-venture.

“In 2018, Didi will continue to cultivate markets in Latin America, Australia and Japan. We are confident a combination of world-class transportation AI technology and deep local expertise will bring a better experience to overseas markets,” the company added in a statement.

This international expansion has also brought a new level of confusion since Didi has cultivated relationships with other ride-hailing companies across the world while also expanding its own presence internationally.

The Uber deal brought with it a stock swap — turning Didi and Uber from competitors into stakeholders — and the Chinese company has also backed Grab in Southeast Asia, Lyft in the U.S., Ola in India, Careem in the Middle East and — more recentlyTaxify, which is primarily focused on Europe and Africa.

In the case of Australia, Didi will come up against Uber, Ola — present in Melbourne, Perth and Sydney via an expansion made earlier this year — and Taxify, too. Uber vs Didi is to be expected — that’s a complicated relationship — but in taking on Ola (so soon after it came to Australia), Didi is competing directly with a company that it funded via an investment deal for the first time.

That might be a small insight into Didi’s relationship with Ola. Unlike Grab, which has seen Didi follow-on its investments, the Chinese firm sat out Ola’s most recent fundraising last year despite making an investment in the company back in 2015.

“The ride-hailing industry is still a young business, and the potential for growth is substantial. Competition exists in ride-hailing, like in any flourishing industry. But it leads to better products and services, which ultimately benefits users,” Didi told TechCrunch in a statement when asked about its new rivalry with Ola and Taxify.

Ola declined to comment. Taxify did not immediately reply to a request for comment.

The move into Australia comes at a time when Didi is under intense pressure following the death of a passenger uses its ‘Hitch’ service last month.

The company suspended the Hitch service — which allows groups people who are headed in the same direction together — and removed a number of features while limiting its operations to day-time only. This week, it said it would resume night-time rides but only for drivers picking up passengers of the same sex.

After report on “appalling” conditions, Foxconn will investigate plant that makes Amazon devices

Foxconn Technology Group says it is investigating a factory it operates that makes Amazon devices, including Kindles, after an in-depth report by advocacy group China Labor Watch criticized its “appalling working conditions,” including excessive hours and over-reliance on temporary workers.

“We are carrying out a full investigation of the areas raised by the report, and if found to be true, immediate actions will be taken to bring the operations into compliance with our Code of Conduct,” Taiwan-based Foxconn, also known as Hon Hai Precision Industry Co., Ltd., told Reuters.

New York-based China Labor Watch says its investigators were sent to the factory, which is located in south central China in Hunan Province’s Hengyang city and also makes Amazon’s Echo Dot Bluetooth speakers and tablets, from August 2017 to April 2018.

During that time, the group says it found that dispatch, or temporary, workers made up more than 40% of the workforce, far exceeding the 10% limit set by Chinese law. Dispatch workers were also treated very differently than regular workers, receiving far less safety training and no overtime wages. Instead, dispatch workers were paid the same rate, or 14.5 RMB ($2.26) an hour for both normal and overtime hours.

Though regular workers were better compensated in terms of wages and benefits, China Labor Watch says both groups were subjected to long hours and low wages, with workers putting in more than 100 overtime hours during peak season, even though the legal limit is 36 hours, and some working consecutively for 14 days. Workers on average earned wages between 2000 to 3000 RMB ($312.12 to $468.19), significantly less than Hengyang’s monthly average wage of 4,647 RMB ($725.22), but often had their overtime hours as punishment for taking leave or having unexcused absences.

The report also claimed that the factory had poor fire safety in its dormitories, lack of sufficiently protective equipment, verbally abusive managers and the “absence of a functioning labor union.”

“Amazon has the ability to not only ensure its supplier factories respects the rights of workers but also that there is equal pay for equal work,” said China Labor Watch on its site. “Amazon’s profits have come at the expense of workers who labor in appalling working conditions and have no choice but to work excessive overtime hours to sustain a livelihood.”

In a press statement, Amazon said it audited the Hengyang factory most recently in March 2018 and asked them to address “issues of concern” related to dispatch workers and overtime.

“Amazon takes reported violations of our Supplier Code of Conduct extremely seriously. Amazon regularly assesses suppliers, using independent auditors as appropriate, to monitor continued compliance and improvement. In the case of the Foxconn Hengyang factory, Amazon completed its most recent audit in March 2018 and identified two issues of concern. We immediately requested a corrective action plan from Foxconn Hengyang detailing their plan to remediate the issues identified, and we are conducting regular assessments to monitor for implementation and compliance with our Supplier Code of Conduct. We are committed to ensuring that these issues are resolved.”

This is, of course, not the first time labor issues at Foxconn, one of the largest electronic OEMs in the world and the main supplier of Apple’s iPhones, have been scrutinized. Most notably, conditions at its Longhua district factory in Shenzhen were blamed for a series of worker suicides in 2010. Serious fires have also broken out at several of its facilities, including one that resulted in three deaths at a factory that made iPad 2s.

TechCrunch has contacted Foxconn for comment.

Alibaba’s Ant Financial fintech affiliate raises $14 billion to continue its global expansion

Ant Financial, the financial services affiliate connected to Alibaba which operates the Alipay mobile payment service, has confirmed that it has closed a Series C funding round that totals an enormous $14 billion.

The rumors have been flying about this huge financing deal for the past month or so, with multiple publications reporting that Ant — which has been strongly linked with an IPO — was in the market to raise at least $9 billion at a valuation of upwards of $100 billion. That turned out to be just the tip of the iceberg here.

The money comes via a tranche of U.S. dollar financing and Chinese RMB from local investors. Those names include Singapore-based sovereign funds GIC and Temasek, Malaysian sovereign fund Khazanah Nasional Berhad, Warburg Pincus, Canada Pension Plan Investment Board, Silver Lake and General Atlantic.

Ant said that the money will go towards extending its global expansion (and deepening its presence in non-China markets it has already entered), developing technology and hiring.

“We are pleased to welcome these investors as partners, who share our vision and mission, to embark on our journey to further promote inclusive finance globally and bring equal opportunities to the world. We are proud of, and inspired by, the transformation we have affected in the lives of ordinary people and small businesses over the past 14 years,” Ant Financial CEO and executive chairman Eric Jing said in a statement.

Alibaba itself doesn’t invest in Ant, which it span off shortly before its mega-IPO in the U.S. in 2014, but the company did recently take up an option to own 33 percent of Ant’s shares.

Ant has long been tipped to go public. Back in 2016 when it raised a then blockbuster $4.5 billionlittle did we know it would pull in many multiples more — the company has been reportedly considering a public listing, but it instead opted to raise new capital at a valuation of $60 billion.

It looks like the same again, but with higher stakes. This new Series C round pushes that valuation up to $100 billion, according to Bloomberg. (Ant didn’t comment on its valuation.) So what has Ant done over the past two years to justify that jump?

It has long been a key fintech company in China, where it claims to serve offer 500 million consumers and offers Alipay, digital banking and investment services, but it has begun to replicate that business overseas in recent years. In particular, it has made investments and set up joint-ventures and new businesses in a slew of Asian countries that include India, Thailand, Korea, Indonesia, Hong Kong, Malaysia, the Philippines, Pakistan and Bangladesh.

The company was, however, unsuccessful in its effort to buy MoneyGram after the U.S. government blocked the $1.2 billion deal.

On the business-side, Ant is said to have posted a $1.4 billion profit over the last year, suggesting it is more than ready to make the leap to being a public firm.

Despite that U.S. deal setback, Ant said today that its global footprint extends to 870 million consumers. I’d take that with a pinch of salt at this point since its business outside of China is in its early stages, but there seems little doubt that it is on the road to replicating its scale in its homeland in many parts of Asia. Raising this huge round only solidifies those plans by providing the kind of capital infusion that tops most of the world’s IPOs in one fell swoop.

Google brings its ARCore technology to China in partnership with Xiaomi

Google is ramping up its efforts to return to China. Earlier this year, the search giant detailed plans to bring its ARCore technology — which enables augmented reality and virtual reality — to phones in China and this week that effort went live with its first partner, Xiaomi.

Initially the technology will be available for Xiaomi’s Mix 2S devices via an app in the Xiaomi App Store, but Google has plans to add more partners in Mainland China over time. Huawei and Samsung are two confirmed names that have signed up to distribute ARCore apps on Chinese soil, Google said previously.

Starting today, #ARCore apps are available on Mix 2S devices from the Xiaomi App Store in China. More partners coming soon → https://t.co/16QoOTgqve pic.twitter.com/lT4TYXrzwF

— Google AR & VR (@GoogleARVR) May 28, 2018

Google’s core services remain blocked in China but ARCore apps are able to work there because the technology itself works on device without the cloud, which means that once apps are downloaded to a phone there’s nothing that China’s internet censors can do to disrupt them.

Rather than software, the main challenge is distribution. The Google Play Store is restricted in China, and in its place China has a fragmented landscape that consists of more than a dozen major third-party Android app stores. That explains why Google has struck deals with the likes of Xiaomi and Huawei, which operate their own app stores which — pre-loaded on their devices — can help Google reach consumers.

ARCore in action

The ARCore strategy for China, while subtle, is part of a sustained push to grow Google’s presence in China. While that hasn’t meant reviving the Google Play Store — despite plenty of speculation in the media — Google has ramped up in other areas.

In recent months, the company has struck a partnership with Tencent, agreed to invest in a number of China-based startups — including biotech-focused XtalPi and live-streaming service Chushou — and announced an AI lab in Beijing. Added to that, Google gained a large tech presence in Taiwan via the completion of its acquisition of a chunk of HTC, and it opened a presence in Shenzhen, the Chinese city known as ‘the Silicon Valley of hardware.’

Finally, it is also hosting its first ‘Demo Day’ program for startups in Asia with an event planned for Shanghai, China, this coming September. Applications to take part in the initiative opened last week.

Shared housing startups are taking off

When young adults leave the parental nest, they often follow a predictable pattern. First, move in with roommates. Then graduate to a single or couple’s pad. After that comes the big purchase of a single-family home. A lawnmower might be next.

Looking at the new home construction industry, one would have good reason to presume those norms were holding steady. About two-thirds of new homes being built in the U.S. this year are single-family dwellings, complete with tidy yards and plentiful parking.

In startup-land, however, the presumptions about where housing demand is going looks a bit different. Home sharing is on the rise, along with more temporary lease options, high-touch service and smaller spaces in sought-after urban locations.

Seeking roommates and venture capital

Crunchbase News analysis of residential-focused real estate startups uncovered a raft of companies with a shared and temporary housing focus that have raised funding in the past year or so.

This isn’t a U.S.-specific phenomenon. Funded shared and short-term housing startups are cropping up across the globe, from China to Europe to Southeast Asia. For this article, however, we’ll focus on U.S. startups. In the chart below, we feature several that have raised recent rounds.

Notice any commonalities? Yes, the startups listed are all based in either New York or the San Francisco Bay Area, two metropolises associated with scarce, pricey housing. But while these two metro areas offer the bulk of startups’ living spaces, they’re also operating in other cities, including Los Angeles, Seattle and Pittsburgh.

From white picket fences to high-rise partitions

The early developers of the U.S. suburban planned communities of the 1950s and 60s weren’t just selling houses. They were selling a vision of the American Dream, complete with quarter-acre lawns, dishwashers and spacious garages.

By the same token, today’s shared housing startups are selling another vision. It’s not just about renting a room; it’s also about being part of a community, making friends and exploring a new city.

One of the slogans for HubHaus is “rent one of our rooms and find your tribe.” Founded less than three years ago, the company now manages about 80 houses in Los Angeles and the San Francisco Bay Area, matching up roommates and planning group events.

Starcity pitches itself as an antidote to loneliness. “Social isolation is a growing epidemic—we solve this problem by bringing people together to create meaningful connections,” the company homepage states.

The San Francisco company also positions its model as a partial solution to housing shortages as it promotes high-density living. It claims to increase living capacity by three times the normal apartment building.

Costs and benefits

Shared housing startups are generally operating in the most expensive U.S. housing markets, so it’s difficult to categorize their offerings as cheap. That said, the cost is typically lower than a private apartment.

Mostly, the aim seems to be providing something affordable for working professionals willing to accept a smaller private living space in exchange for a choice location, easy move-in and a ready-made social network.

At Starcity, residents pay $2,000 to $2,300 a month, all expenses included, depending on length of stay. At HomeShare, which converts two-bedroom luxury flats to three-bedrooms with partitions, monthly rents start at about $1,000 and go up for larger spaces.

Shared and temporary housing startups also purport to offer some savings through flexible-term leases, typically with minimum stays of one to three months. Plus, they’re typically furnished, with no need to set up Wi-Fi or pay power bills.

Looking ahead

While it’s too soon to pick winners in the latest crop of shared and temporary housing startups, it’s not far-fetched to envision the broad market as one that could eventually attract much larger investment and valuations. After all, Airbnb has ascended to a $30 billion private market value for its marketplace of vacation and short-term rentals. And housing shortages in major cities indicate there’s plenty of demand for non-Airbnb options.

While we’re focusing here on residential-focused startups, it’s also worth noting that the trend toward temporary, flexible, high-service models has already gained a lot of traction for commercial spaces. Highly funded startups in this niche include Industrious, a provider of flexible-term, high-end office spaces, Knotel, a provider of customized workplaces, and Breather, which provides meeting and work rooms on demand. Collectively, those three companies have raised about $300 million to date.

At first glance, it may seem shared housing startups are scaling up at an off time. The millennial generation (born roughly 1980 to 1994) can no longer be stereotyped as a massive band of young folks new to “adulting.” The average member of the generation is 28, and older millennials are mid-to-late thirties. Many even own lawnmowers.

No worries. Gen Z, the group born after 1995, is another huge generation. So even if millennials age out of shared housing, demographic forecasts indicate there will plenty of twenty-somethings to rent those partitioned-off rooms.

Eurovision cancels Chinese broadcast due to LGBTQ censorship

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Following allegations of LBGTQ and tattoo censorship, the remainder of this year’s Eurovision Song Contest will no longer be broadcast in China.

The decision comes from Eurovision’s organiser, the European Broadcasting Union (EBU), who terminated the agreement with China’s Mango TV on Thursday. 

As per the BBC, reports surfaced about the internet broadcaster blurring out the flags of Albania, Ireland, and the LGBTQ flags during the first semi-final of this year’s contest, as well as editing out the performances by Irish and Albanian contestants. Read more…

More about Entertainment, Tv, China, Censorship, and Lgbtq

Chinese authorities dish out $5M in fines for developers of PUBG hack software

There has long been speculation and evidence of cheating software for PlayerUnknown’s Battlegrounds (PUBG), but action is being taken to stamp it out. The makers of the smash-hit game have confirmed that they have worked with authorities in China who have dished out over $5 million in fines to at least 15 people caught developing hacks that help players cheat.

PUBG, in case you missed it, is one of the top-grossing games in the world this year. A shoot-up battle royale game that sees players battle to survive to the end, PUBG grossed $700 million in revenue via PC sales last year and that’s only increased in 2018 as the title landed on mobile. It’s particularly big in China where internet giant Tencent is the publishing partner.

That Tencent link might have proved useful, as Bluehole — the company behind PUBG — revealed in a statement that Chinese authorities have helped it clamp down on hacking programs, handing out the huge number of fines in the process:

Here’s some translated information from the local authorities we worked with on this case:

“15 major suspects including “OMG”, “FL”, “火狐”, “须弥” and “炎黄” were arrested for developing hack programs, hosting marketplaces for hack programs, and brokering transactions. Currently the suspects have been fined approximately 30mil RNB ($5.1mil USD). Other suspects related to this case are still being investigated.

While the programs were being developed in China and there were users there too, it isn’t clear whether that reach extended to gamers in the U.S. and other countries.

Beyond just cheating, there is also a significant risk for those who use the hacked software.

Bluehole said it found evidence that the programs were used by their developers to infect host PCs in order to “control users’ PC, scan their data, and extract information illegally.” Some, it is said, used Trojan Horse software to steal user information — that could mean information from when they shop online (like credit card numbers), the content of emails, and more.

Y Combinator is going after Chinese startups with its first official event in China

High-profile U.S. startup accelerator Y Combinator is making a push to bring more China-based startups into its program after it announced its first official event in the country.

YC has made a push to include startups from outside of North America in recent years. That has seen it bring in companies from the likes of India, Southeast Asia and Africa, but China remains underrepresented. According to YC’s own data, fewer than 10 Chinese companies have passed through its corridors. YC counts over 1,400 graduates.

“Startup School Beijing” is scheduled for May 19 in the Chinese capital at Tsinghua University. The event will be free to attend — though attendees might apply for a ticket — with the goal of showing the benefits of participation in its U.S. program.

To help make its case, the organization has pulled in star graduates like Airbnb and Stripe while its president Sam Altman himself is scheduled to appear.

The event will include sessions with graduates, YC partners and “live on-stage office hours.” That’ll see three companies picked from the audience to get advice and tips from the attending partners, as happens in the program. Sessions will be in both English and Chinese with live translations available.

YC partner Eric Migicovsky, who founded Pebble, is leading the event, which will include the following speakers:

In addition to helping U.S. hardware founders, Migicovsky was brought on specifically to make inroads into China and he is optimistic that there is strong demand.

“We’re hosting Startup School in Beijing to meet local entrepreneurs and start a dialogue about how YC can help,” he told TechCrunch. “The event and the founders we meet will help to inform our strategy going forward. Naturally, we hope to find Chinese startups to apply to our core Y Combinator program in Silicon Valley.”

YC officially announced the event today but the organization’s brand is so strong that word already got out in local media once it began sending out invitations, as our Chinese partner Technode reported.

WeWork confirms deal to buy Naked Hub, one of its main competitors in China

WeWork is buying up one of its largest competitors in China after it announced a deal to acquire Naked Hub.

The deal was widely reported by Chinese media yesterday, but WeWork has now confirmed it through a blog post from its CEO Adam Neumann. Terms of the transaction are not disclosed but Bloomberg reported that it is worth around $400 million.

Naked Hub is an offshoot of China-based luxury resort company Naked Group that was started in 2015 by Grant Horsfield and Delphine Yip-Horsfield. The company is primarily anchored in China, with most of its locations in Beijing and Shanghai, but it has expanded into Australia, Hong Kong and Vietnam. All told, it claims to have 10,000 members across its 24 office locations.

Even though a deal to merge with Singapore-based JustCo was called off, Naked Hub had emerged as one of WeWork’s fiercest competitors in China with the ambition to continue that battle in Southeast Asia and other markets, as I wrote last year.

WeWork isn’t commenting at this point about how it plans to integrate the two brands, but its CEO Neumann paid tribute to the Naked Hub business.

“We have found an equal who shares our thinking about the importance of space, community, design, culture, and technology. Together, I believe we will have a profound impact in helping businesses across China grow, scale, and succeed,” he wrote.

“China-born naked Hub and WeWork may come from vastly different backgrounds, but there is more that binds us than separates us. The values we share toward creating a vibrant community for our members by using design, technology, and hospitality are core to how both companies are successful,” said Horsfield, Naked Group’s founder and chairman.

Naked Hub may be a growing threat to WeWork China, but it is far from the only major competitor. Unicorn Ucommune — which changed its name from URwork following a lawsuit from WeWork — is perhaps the largest profile Chinese challenger.

WeWork launched in China in 2016 via Shanghai. Today it said it has 13 locations in Greater China with plans to increase that to more than 40 by the end of this year. That’s a move that it said will quadruple its membership numbers in China from 10,000 to 40,000.

The deal is WeWork’s second acquisition of a competitor in Asia, its first being a deal to buy SpaceMob, a then 1.5-year-old company in Singapore, last year.

The company has been lining its pockets to fuel a big push into Asia.

Last year, the firm span out a WeWork China entity backed by $500 million from investors, while capital also went to WeWork Japan — a unit that investor SoftBank owns half of — and WeWork Pacific, its business focused on Southeast Asia and other parts of the region which also got a $500 million to spend. All of that capital was part of a $4.4 billion investment round in WeWork from SoftBank.

Alibaba to buy all remaining outstanding shares of local delivery service Ele.me

As expected since February, Alibaba will buy all outstanding shares of Ele.me that it doesn’t already own. Best-known for food deliveries, Ele.me claims to be China’s biggest online delivery and local services platform. In an announcement, Alibaba said the deal values Ele.me at $9.5 billion. Alibaba, which first invested in Ele.me two years ago, and its affiliate Ant Small and Micro Financial Services Group currently hold about 43% of the company’s outstanding voting shares.

This is the latest in a string of investments and acquisitions by Alibaba to expand its physical retail presence as part of its so-called “new retail” strategy to combine e-commerce and offline retail. The company’s goal is to make it easier for users to move (and spend money) between brick-and-mortar stores and Alibaba businesses like Tmall and Taobao. For example, they may view products at pop-up stores and then order them on their smartphones for almost-immediate home delivery.

Ele.me, which will continue to operate under its own brand, is at its heart a logistics technology company. Founded in 2008, it utilizes its logistics system to provide services like Fengniao, an express courier for local deliveries. After the deal is finalized, Alibaba said that founder and chief executive officer Zhang Zhuhao (also known as Mark Zhang) will become chairman of Ele.me and special advisor to Alibaba Group CEO Daniel Zhang on its new retail strategy. Wang Lei, currently vice president of Alibaba Group, will take over as Ele.me’s CEO.

In a press release, Zhang said “Under the leadership of its founder and management team, Ele.me has achieved leading market share in China’s online food delivery and local services sector. Our shared belief that New Retail will create more value for customers and merchants has brought us together. Looking forward, Ele.me can leverage Alibaba’s infrastructure in commerce and
find new synergies with Alibaba’s diverse businesses to add further momentum to the New Retail initiative.”

Bloomberg reported at the end of February that Alibaba planned to buy the rest of Ele.me’s shares from its other investors, including Baidu.

The deal deepens Alibaba’s competition with Tencent, in particular its own local services and delivery platform, Meituan Dianping, which was formed by a merger in 2015. Alibaba previously owned shares in Meituan Dianping, thanks to its investment in Meituan, but began offloading them soon after the merger with Dianping.

In a statement, Alibaba said Ele.me complements its affiliate Koubei, a platform that gives restaurants and stores a way to go online and reach more local customers.

“By combining Ele.me’s online home delivery services with Koubei’s consumer acquisition and engagement capability for a range of restaurants and service establishments, Alibaba will be able to offer an integrated experiences to customers both online and offline,” said the company.