Internet Companies in Emerging Markets: A $5 Trillion Opportunity?

Now that the dust has settled on the Alibaba IPO, we are not surprised to find the company sporting a ~$240 billion market cap, or Internet companies in Emerging Markets as a whole accounting for nearly $600 billion in total market cap.

But the bigger question remains: how much market cap will Internet companies in Emerging Markets create in the coming years?

One simple way to start answering this question is to look at how much market cap has been created by Internet companies in Developed Markets. Today, Internet companies in Developed Markets like the US account for ~$1.3 Trillion in public market cap. While it would be tempting to assume that Emerging Markets simply “catch up” to this over time and eventually get to $1.3 Trillion as well, this misses the bigger picture.

The bigger picture is this: over the next decade or so, Emerging Markets will account for 50% of the world’s GDP, 66% of the world’s growth in GDP, and 87% of the world’s population. So in all likelihood, Internet companies in Emerging Markets will account for a similar percentage of global Internet market cap over time as well, and grow to closer to ~$4-5 Trillion in market cap.

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The Importance of Tech Founders (or, Why we disagree with the Rocket Internet model)

I often get asked what I think about Rocket Internet, particularly now that they are in the midst of pursuing an IPO. I’ve never met the Samwer brothers. So while others have very strong opinions about them as individuals, I don’t. In fact in some ways I applaud their entrepreneurial vigor and some of the successes they have had, and wish them success in their upcoming IPO.

But I do think that the “company-builder” model that they’ve popularized doesn’t make much sense in the technology industry.

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When it comes to the Internet, Emerging Markets are very, very different

When I speak to other investors who invest in some of the types of companies we invest in, we often use shorthand to describe an emerging market Internet business that resembles a successful US one. The shorthand usually describes the business in question as the “this of that”. For example, the “Amazon of India” or the “Netflix of Russia”.

We use this shorthand to quickly describe the gist of what a company does. Does it deliver video over the Internet? Then it must be kind of like Netflix. Does it sell multiple categories of goods and have its own warehouses? Then it must be kind of like Amazon.

But an important part of using analogies like this involves recognizing that they have limitations. Sometimes, huge limitations. Emerging market companies are often so different from their US parallels that using analogies can really get you in trouble in terms of understanding what the company actually does.

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