(Chinese Version)

Recently, Hurun Report released the Hanya Capital: Hurun Global Chinese Rich List 2015, showing that the 61-year-old Chinese mainlander Wang Jianlin had surpassed the once richest Chinese businessman Li Ka-shing and become on top for the very first time. As for tech companies, Jack Ma’s Alibaba now ranks the 3rd, Pony Ma’s Tencent ranks the 6th, Robin Lee’s Baidu ranks the 10th, Leijun’s Xiaomi ranks the 12th, Li Qiangdong’s JD ranks the 40th, Shi Yuzhu’s ZtGame ranks the 54th, and Guo Taiming’s Foxconn ranks the 62th.

If we take a closer look at the listed names on the chart, we could easily find that most people are from the real estate sector (24%). However, we can still find that industry leaders from the Internet sector are doing extremely great as well and their performance is actually very eye-catching. There’s no doubt that the Internet industry has become a crazy money-making machine that’s making many people extremely rich overnight. In fact, in 2014 industry leaders from the Internet sector had even greater accomplishments, with Jack Ma, Robin Lee and Pony Ma taking up the top three and Lei Jun and Liu Qiangdong entering the top ten on the fortune chart.

New Internet players are also making a great stir. This year, the April issue of the Fortune Magazine published the 2015 Top 50 Most Influential Business Leaders chart on which Jack Ma ranked the top one, Pony Ma ranked the second and CEO of Huawei Ren Zhengfei ranked the third. Additionally, the founder, CEO, and board chairman of LeTV made a quick jump to the 44th on the chart.

The year of 2014 also witnessed the listing of the vertical B2C cosmetic e-commerce platform Jumei on NYSE, with a market capitalization of 4 billion dollars, surpassing traditional Internet companies such as Sohu and Sina etc. The CEO of Jumei Chen Ou’s personal wealth had increased to over 1.5 billion dollars thanks to the listing and it only took him 4 years to achieve that. Xiaomi also used the same amount of time to get a market evaluation of over 4 billion dollars. In fact, the industry is expecting Xiaomi to become as powerful and influential as BAT.

Internet giants are getting a higher market capitalization fast and the stock option incentive mechanism is making lots of industry workers rich overnight

Even ten years ago, the Internet had already been making people rich at an incredible speed. According to statistics, after getting listed on NASDAQ in 2005, Baidu had made over 8 billionaires, 50 multimillionaires and 240 millionaires and the reality was Baidu only had 750 employees back then. In 2014 Alibaba went public in the US and it’s said that the company had made more ten thousand multimillionaires thanks to the listing, setting a whole new record for the world. Of course, this number has never been confirmed by Alibaba officially, but it still shows how fast an Internet company can make a group of people rich overnight.

The reason for this incredibly speed to make people rich overnight is that, on the one hand, the Internet industry in China learns the stock option incentive mechanism from the US, which makes stock-holding core employees in the companies with a high market capitalization rich as the stock price goes up. Internet companies usually adopt the stock option incentive mechanism to encourage staff continuously. Once these companies go public on the stock markets, the senior executives and staff generally get high benefits and stocks as incentives. In this case, many Internet companies’ core staff usually owns a degree of stocks of their companies.

For instance, Baidu, Alibaba and Tencent have all adopted the mechanism that use large stocks of the company as incentive to encourage their staff. Last year, Tencent announced that the company would issue 19.52 million new stocks as incentives for its employees. In accordance with the latest stock price of Tencent, 19.52 million stocks now worth a total cash of 1.9 billion RMB and over 4,997 employees have benefited from it. In fact, when Alibaba allegedly made over 10,000 employees multimillionaires the company already had over twenty thousand employees at that time. And Alibaba’s employees can get some stock options or restricted stocks once they reach a certain position and attain a certain achievement. Rumor has it that 8 years after the founding of Alibaba, about 70% of the staff has got stock options as incentives. After going public, it’s said that 50% of Alibaba’s staff that was holding the company’s stock options, about 11,000 people, received a great fortune. It’s estimated that every one of them was able to get about 4.22 million dollars in cash. Also, at the end of last year, Alibaba’s Ant Financial gave out 40% of its stocks to its 24 thousand employees as benefits, making every staff of the company own the stocks of the firm. JD’s CEO Liu Qiangdong also stated that the stocks that the company’s staff was holding had reached over 70% of his stocks.

A high market capitalization or evaluation usually leads to the surge of the personal wealth of the large stockholders. For instance, Tencent’s former CTO Zhang Zhidong was the company’s second largest individual stockholder, holding over 6% stocks of the company when Tencent first went public. Boosted by the tremendous success of WeChat, Tencent’s stock price skyrocketed in 2014, making Tencent the first Internet company that had attained a market volume of over a hundred billion dollars. On the Fortune 3000 Chinese Families Chart from the Money Week Magazine, Pony Ma’s family tops the chart with a total wealth of 100.7 billion RMB while Zhang Zhidong ranks the 6th with a wealth of 34.6 billion RMB.

All the indicators show that in the Internet industry the wealth of core staff rises together with their companies. And the situation today appears to be promising for Internet companies. As Internet companies’ performance and stock price go up, their stockholders’ personal wealth also rises. Statistics show that from July, 2014 to the end of April, 2015, 15 out of 50 fastest-rich-making companies were Internet and computer companies. Some of these companies only got listed on the stock market in recent time. The surging stock price made the large stockholders rich in a very short time.

Supporting policies and the agglomeration effect of professional talents bring about innovative products, boosting market evaluation and wealth up in the mean time

Supporting policies advocated by the Chinese government have contributed greatly to this phenomenon. This year, the plan to carry out the Internet+ policy was even written in the government work report. In China, the Internet used to be a supplementary mean to assist science and technological researches and was first introduced by research institutes and researchers from overseas. On September 14th, 1987, China successfully sent an email to Germany, indicating that China had entered the early time of the Internet era. After that, China’s reform and opening policy also allowed the country to have more contacts to the outside world and greatly boosted the development of the Internet in China. On April 20th, 1994, China achieved to connect fully to the global Internet. Later on, the Internet showed the great potential to generate jobs and increase the domestic demand which made the government give even more support to the Internet industry, causing the Chinese Internet community to be more active then ever. It’s apparent that the development of the Internet industry is deeply linked to the Internet environment in the country and the government’s supporting policies.

The fast growing Internet industry also brought about an immense agglomeration effect of professional talents. A great number of elites started to flow into the Internet industry, pushing and helping the industry be more creative and innovative. As far as I am concerned, the Chinese Internet industry and the global Internet industry have shown the sign to be in sync. This tendency is even more obvious in the mobile Internet industry.

The renowned American tech media Wired has recently stated in an article: “China’s ability to innovate has surpassed the ability to replicate. The country is currently redefining the search engine sector, business world, society, and the entertainment and advertising world. China now has more social media users than the US’s total population. Tech giants all know the value of information and data, and they are keeping close tags on how Internet users are communicating with each other with smart phones. In China, mobile Internet users are able to manage their money, hail a private cab, and even make investment on their smart phones. Such user habits are not that wide-spread even in a developed country like the US.”

The agglomeration effect of professional talents within the Internet industry is pushing the innovation of Chinese products forward. Investment, merger, listing, and acquisition are happening constantly in the country, which has also generated bubbles in the industry. Now VC investment is in a fast-growing period. The booming of the Internet industry also attracted the eyes of VC, urging them to enter this lucrative sector. In the first quarter of 2015, there were 420 investments happened in China, among which 148 investments were made in the Internet industry. The wide spread of smart phones means great market potential and more possibilities to connect traditional offline sectors with the Internet. Everything contributes to the growth of the Internet industry and people have a high expectation for this sector, and therefore relevant companies’ stock price goes up and related people become rich overnight.

Giants’ investment layout continuously expands, making the evaluation go even higher and speeding up the rich-making process

It’s known to all that Baidu, Alibaba, and Tencent’ s core businesses are the searching, social media, and e-commerce sector. For users, information searching, social networking, and e-commerce service are rigid demands. In these three fields, once a company’s comprehensive advantage is established, then it would be extremely difficult to surpass it. Take Tencent as an example, almost every Chinese Internet user’s social network is based on the company’s products, QQ and WeChat. As far as I can tell there is no product that can compete with either QQ or WeChat so far. The social network ecosystem that Tencent has created is almost invincible.

The same is true for Baidu and Alibaba, which have been dominating their own areas for a long time and have developed their own technologies, brands, contents, and e-commerce services through out years of operation. They have formed their own powerful ecosystem, so that few forces can compete with and users have grown sort of dependent on them. In recent years, giants are also making continuous moves to expand their business. They continue to acquire competitive companies in the field of searching, social networking and e-commerce, trying to find ways to develop new businesses around their core business in order to expand their ecosystem.

Generally speaking, acquisition history and business layout are closely connected to the market evaluation of a company. Every giant is gearing up to build up advantages in this perspective to further expand their business and get more room to grow. Tencent’s Internet strategy and its acquisition actions such as investing in Ddianping.com last year are moves to make WeChat an intermediate app to achieve more functions. Even though Tencent’s revenue comes mostly from its gaming business, its major product WeChat has the potential to connect with everything. We can literally say that WeChat alone can give Tencent an extremely high market evaluation. According to reports from HSBC, WeChat now has a market evaluation of over 83.6 billion RMB. Needless to say, this massive success of WeChat is greatly attributed to the acquisitions and investment moves made by Tencent.

Last year, before going public on the stock market, Alibaba mainly invested in and acquired companies in the entertainment, e-commerce, car-hailing app, video, and movie sector, signifying preparation to bring up the market evaluation as much as possible before the listing. Later Alibaba’s efforts turned out to be successful and they added up greatly to the company’s stock price. It made Alibaba the most rich-making company in the world in terms of the speed and scale, setting up a whole new record globally. Baidu’s massive investment in the O2O sector and the smart hardware sector can also be seen as secret weapons to boost the company’s momentum in the future.

Monopolizing the industry, making mad money

Pony Ma once stated that: “The Internet is not something that only exists in the new economy. I believe it will eventually become a tool for any industry that needs it, just like the steam engines and power plants made in the industrial age.” Pony Ma’s idea actually can be used to describe China’s BAT and the US’s Google and Facebook and other giants. What these giants are trying to develop and build are just like power plants and hydropower plants. They exclude the unnecessary process that decrease efficiency from the traditional production and distribution process and connect service provides and manufacturers directly with consumers.

In other words, they are fixing the problem of information asymmetry. Internet giants in the searching, social networking and e-commerce sector can easily generate flows of data and information and tons of visitor views. Traditional manufacturing companies hope to make their manufacturing and sales process closer to their clients, and search engines and e-commerce platforms help them find the optimal way to best combine production elements with users to reduce cost. It also simplifies the division of labor and reduces the information cost caused by user’s individual needs. In this era, we can gradually see that the Internet is becoming more like the steam engine and electricity, which all have the potential to bring about revolutions.

Industry giants continuously transform traditional industries through monopolizing online commercial real estate, portals, and getting hold of a massive visitor flow. In most cases, platforms rely on their scale to win. The more enterprises and businesses a platform has, the more users will flow in and the larger space the platform will have to grow. In general, entering businesses will push the platform to grow in scale and stabilize the platform’s business mode. It allows Internet giants, after successfully building their own platforms, to make mad money at a speed that’s beyond our imagination. This also benefits the shareholders greatly, making their personal wealth surge alongside with their companies.

The rapid development of the online e-commerce industry is largely based on China’s unique development stage, which is, the lack of mature infrastructures, channels, and adequate offline business environment. This is also the reason why the e-retailing industry could continue to grow at a high speed. Taxation, administrative cost and high rental are the burdens that small and middle-sized companies that have to conquer from the very start. In this case, to reduce cost many offline businesses choose to transfer their business to online and through paying an amount of platform fare high cost is avoided. This also creates more possibilities for businesses to promote their names. For instance, major e-commerce platforms such as Tmall, JD, and even VIPshop all reduce the cost greatly for businesses by eliminating the needs to rent a brick and mortar store.

In this case, the reason behind e-commerce platforms’ high market evaluation and rich-making speed is its connectivity to businesses. They have a clear business model, that is, allowing businesses to set up stores on their platforms and charge them a certain amount of fee. And China’s enormous market and demographic dividend make every vertical sector full of business potential and fortune. That’s why vertical e-commerce platforms such as VIPshop usually have a very high market evaluation. Case and point once Jumei went public, Chen Ou went straight up to the top 16 on the 2014 Hurun IT Fortune Chart.

At present, the Internet+ strategy has become a national-level strategy and the natural needs of Chinese Internet companies are blending into traditional industries and it's making them transform faster. Additionally, the rise of the Internet is also the result of the advancing material life. When industry has developed to an advance level, then humans will enter an age of materials. In this age, the needs for fashion, social networking, entertainment and other psychological needs surpass the material needs, and the latter needs need Internet products to fulfill.

In this era of Internet companies, we mainly get what we need online due to the factor Internet giants have penetrated literally almost every aspects of our everyday life. Tecent, Baidu and Alibaba have already monopolized the most traffic flow in the fields of their core businesses, already on the top of the food chain. And being on top of the food chain means the incredible speed to generate wealth.

Sohu’s founder Zhang Chaoyang even once stated in a speech that the Internet industry would gradually control China’s economy. In China, only the Internet industry is with complete and pure market-oriented competition. It’s literally the fairest industry in China.

And when a product is in disadvantage in competing with its rivals, then putting it on the Internet could magnify its advantages. This kind of great boost enables the Internet industry to have higher possibilities to generate first-class organizations and management structures and talent incentive mechanisms that will greatly stimulate innovation and sales. When Internet products have reached this state then they are indeed changing the organization flow of large-scale productions and transforming production relations. Just like what Zhang Chaoyang had said, the Internet is taking over China’s economy.

The Internet industry has limits

Cai Wensheng once predicted: “If we say the last two decades the fortune chart had been dominated by industry leaders from the real estate, automobile and IT sector, then the next generation will be dominated by people from Internet companies. Last year we already have five people out of ten on the top ten chart. Perhaps three years later, the top twenty names will be all from the Internet or IT sector. ”

Although it’s widely accepted that the Internet has immense power to shape the business world, we still can’t overrate the influence and power of this very industry. The truth is, crises are just around the corner. Pushed by the Internet+ policy advocated by the premier Li Keqiang, the Internet industry is actually forming a huge bubble that could burst in any time. At present, VC organizations and individual investors and entrepreneurs are flocking to make something in this sector, signifying that the Internet sector is still in an unstable state. When every industry all wants to use the Internet to get a higher market capitalization and receive more capital, it means that huge tech bubbles have been generated, which will lead to the end of many startups. Indeed, all the successful cases in which people became extremely rich overnight appear to be tempting, but the reality is that many people failed as well and the number is so much bigger than that of the successful cases. Few people realize the risks behind such prosperous sight and see all the obstacles that those successful individuals and companies have been through.

The layout of the Internet industry in China has already been formed and industry giants’ ecosystems have reached a stable state, covering most sectors. It’s very unlikely to have new giants emerging in vertical sectors nowadays and the opportunities are scarcer than the previous years. At present, Apple, Google and Microsoft still dominate the Internet and tech industry globally with the highest market capitalization. As in China, there are also little chances for startups to surpass BAT.

Additionally, in the eyes of traditional industries, the Internet is only a tool to reducing cost and transforming sales methods and production modes. It’s a better channel to reach the consumers. However, if traditional companies attach too much importance to the Internet, or, even become Internet companies, then their own enterprise gene and their unique advantages will be eradicated as competition grows fiercer. In China, even though the Internet industry is indeed nurturing many wealthy companies and individuals, the industry layout has been already set and there’s little room and space for newcomers to grow. Traditional companies and entrepreneurs should combine their own advantages with the Internet and make better modifications and improvements, not just blindly follow the fad. We all need to see through the glamorous bubbles before us and realize that the Internet can’t fix everything and make everything.

[The article is published and edited with authorization from the author @Wang Xinxi, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.