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The China operations of two iconic Seattle-based companies have made headlines in recent days. Last week, Amazon announced that it will close its floundering domestic e-commerce business in China, ending a fifteen-year struggle for market share. And on Monday, Luckin Coffee, the scrappy Beijing-based startup that is on the verge of overtaking Starbucks as China’s largest coffee chain, filed to list shares on the NASDAQ.
The common thread to both stories (aside from their Seattle connection) is that they demonstrate that in the world’s largest consumer market even the most powerful Western firms face formidable competition from nimble homegrown upstarts.
Amazon’s failure to gain traction in China is a riddle. While other U.S. tech giants like Google or Facebook can plausibly claim they never had a chance in China because they were blocked by Beijing, Amazon faced no such impediments. The U.S. online colossus came to China in the early 2000s, then ramped up its investment in 2004 with a $75 million purchase of Joyo.com, China’s biggest online bookseller at the time. Amazon built warehouses and data centers and created programs to help Chinese merchants sell on its site. But it refused to compete with local rivals who offered free shipping and overnight delivery without requiring minimum orders. This analysis in the South China Morning Post (owned by Amazon’s main China nemesis, Alibaba Group) blames the Seattle powerhouse’s defeat on dreadful web design. Amazon’s share of China’s $378 billion e-commerce market is less than 1%, according to iResearch China.
Starbucks established early dominance in China. The company opened its first store in China in Beijing in 1999 and spent two decades developing coffee culture in a land of tea drinkers. Starbucks now operates more than 3,700 outlets in China and, according to Euromonitor, and commands a 50% market share in the country. Expansion continues at a relentless pace: Starbucks opens a new store in China every 15 hours.
But, as Fortune‘s Eamon Barrett has noted, the Seattle giant was slow to recognize the challenge from Luckin, a startup founded in 2017 by the former COO of Uber-like car provider UCAR. Luckin’s stores are smaller and designed to facilitate pick-up and delivery–an idea that resonates with China’s mobile-mad young consumers. With initial funding from Singapore’s sovereign wealth fund GIC, and China International Capital Corp., Luckin achieved unicorn status within seven months. It has opened 2,370 stores in 28 Chinese cities, and plans to add 2,500 more this year. That would bring Luckin’s total to 4,500 stores, topping Starbucks. Starbucks’ China operation is highly profitable, while Luckin runs deeply in the red. Even so, Luckin recently raised $150 million from international investors including BlackRock, at a valuation of $2.9 billion.
Many Chinese commentators have attributed the success of upstarts like Alibaba, JD.com and Luckin to China’s “996” work ethic. The number is a reference to the notion that, at Chinese tech firms, employees are expected to work from 9 a.m. to 9 p.m. six days a week. Founders of Alibaba and JD both weighed in last week to defend 996 culture. On Monday, a group of 100 software engineers from prominent American tech companies signed a letter of solidarity with Chinese tech workers who have sought to document the ill effects of “grueling and illegal” hours. The letter and protestors’ posts have been published on the “996.icu project,” a site hosted on GitHub, a subsidiary of another Seattle icon, Microsoft.
Not spooked. Speaking of homegrown Chinese players, telecom equipment maker Huawei got some good news from the United Kingdom. The country’s National Security Council said it would allow Huawei gear in “noncore” parts of new 5G wireless networks despite U.S. concerns about possible security vulnerabilities.
IRL. One in 10 Americans does not use the Internet, according to a new report from Pew Research. The offliners are disproportionately older, poorer, and to have less education than a high school diploma. They are at least avoiding all of the online scams that have become prevalent. Global losses from online theft, fraud, and exploitation totaled $2.7 billion last year, about double the 2017 total, the FBI’s Internet Crime Complaint Center reports.
Signaling. Twitter CEO Jack Dorsey met with President Donald Trump at the White House on Tuesday, just after Trump had criticized the social network for “playing their political games.” In a tweet about the meeting, Dorsey said “Twitter is here to serve the entire public conversation, and we intend to make it healthier and more civil,” adding: “Thanks for the discussion about that.”
Speed bump. In chip world, Intel unveiled a bevy of ninth-generation Core processors for mainstream laptop and desktop computers, with speeds hitting 5 GHz even for the portables. But a new challenger may be coming. Samsung, already a giant in memory chips, announced a 10-year, $116 billion effort to compete in more advanced processor chips.
Taking off. The Federal Aviation Administration certified Wing Aviation, the drone delivery unit of Google parent Alphabet, as an air carrier. The move means Wing can start charging for deliveries in Virginia and seek authorization to expand to other regions.
Ding dong. A couple of expansions of e-commerce and retailing. Food delivery service Postmates is adding 1,000 more cities to its service area, bringing the total to 3,500, as it heads into an initial public offering. And Kohl’s is expanding a limited trial where it accepted Amazon package returns from 100 stores to all of its 1,150 outlets.
Stand and deliver. In a busy period on Wall Street, Snap and eBay impressed investors while AT&T fell a little bit short. Snap said revenue increased 39% to $320 million and its shares, already up 118% this year, jumped another 4% in premarket trading on Wednesday. At eBay, revenue was about flat at $2.6 billion but that was better than analysts expected and its shares rose also rose 4%. AT&T, bolstered by its Time Warner acquisition, saw revenue grow 18% to $44.8 billion, slightly less than analysts expected. AT&T shares, up 16% this year, were down 1%.
FOOD FOR THOUGHT
Not everyone’s a fan of the vastly growing market for podcasts. Washington Post pop music critic Chris Richards wrote a rant last week making the case that the proliferation of podcasts is wasting our time and crowding out listening to music. Plus, there’s the annoying vocal styles:
IN CASE YOU MISSED IT
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BEFORE YOU GO
And the award for the clickiest headline of the week goes to The Atlantic: The Predator That Makes Great White Sharks Flee in Fear. Spoiler alert: it turns out killer whales are the more effective hunters, although I’m not sure I was so surprised to learn that was the answer to the headline’s “curiosity gap.”