As a special enterprise group derived from the business ecology in recent years, unicorn companies have received widespread attention from the general public. The emergence of unicorn companies relies heavily on the Internet to enter social and economic life. It can also be said that the three major effects of the Internet have made it possible for Internet-based companies to grow at an unprecedented speed.

The first is the link effect across time and space. The Internet can realize convenient global links that are not restricted by time, space and region, therefore maximizing the number of its customers at a fast pace.

The second is the platform effect, that is, Internet-based services have actually evolved into platform-based products, thus enabling them to enjoy the benefits of the “first mover advantage” boasted by platform products.

The third is the hierarchical derivation effect, that is, the operation started from the Internet can create many new businesses, for example online shopping will inevitably lead to the emergence of express delivery, online payment, etc.

Take Taobao as an example. It first creates express and electronic payment services in order to maintain the sound and sustainable development of online commerce. Secondly, Internet-based transactions feature the enormous aggregation of data and knowledge. On the one hand, many beneficial rules can be explored through the development of data, and commercial value obtained through consulting services; On the other hand, the exploration and utilization of data has also promoted Alibaba’s capabilities in data storage, algorithms, computing power and other aspects to gradually achieve improvement, thus becoming the advantage and leading body of the intelligent technology. It is this hierarchical derivation that has enabled Internet companies such as Alibaba and Tencent to quickly develop into a mixed-business operation giant, allowing them to complete their value accumulation in about a decade(actually surpass) which Ford, Volkswagen and other companies during the Industrial Age have to complete in nearly a century. Based on the established platforms and customer base advantages of Alibaba and Tencent, its derived companies such as Ant Financial have grown faster; Another example is that Pinduoduo has reached a market value of US$24 billion in just three years, becoming the representative of China’s second-generation Internet unicorn company. Short video apps such as Kuaishou and Tik Tok have developed rapidly over the past two years, satisfying the consumption characteristics of contemporary young people who pursue entertainment, personalization, and self-expression. They represent new unicorn companies of the consumer Internet, which also sparks short video entrepreneurship.

Although unicorn companies fall into the category of special enterprise community in the business ecosystem, it is impossible for them to ignore the commercial principles due to its commercial nature. It can also be said that unicorn companies should pursue growth in line with business principles. In this sense, what is the rational growth of enterprises in the Internet age? Based on the characteristics of the Internet business ecosystem, we can reflect upon the growth and development prospects of the enterprise from the following five characteristics:

First, the sharing nature of platforms, or the degree of sharing platforms operated by enterprises. This sharing degree can be visually observed, whether “operators provide platforms for public engagement” or “operators provide platforms for themselves or targeted individuals”. These two operating models not only affect the type of users and the size of customers, but also directly affect the operating costs of the enterprise. WeChat, Zhihu, etc. are typical cases for “operators providing platforms for public engagement”. In comparison, Hundun University, etc. feature “operators providing platforms for themselves or targeted individuals”. Obviously, the higher the degree of platform sharing is, the greater the competitive advantage of the platform.

Second, the controlability of service costs. In short, can the enterprises keep the costs of providing services to its customers within control? WeChat and Taobao function with a higher degree of self-control, the costs of which mainly arise from platform maintenance and operation. However, shared bicycle companies and Luckin Coffee cannot self-control their costs since they have to first invest in hardware such as bicycles and coffee shops. Furthermore, it is also difficult to control the costs of these hardware. For example, Mobike cannot prevent its bicycles from being destroyed by its users, and Luckin cannot control the increase in the rents of coffee shops.

Third, the stickiness of considerable consumers. Company-based Internet platforms can not only quickly attract a large number of customers, but also form strong consumer stickiness. For example, why it takes only three years for Tencent’s WeChat Pay to successfully catch up with the scale of customers accumulated by Alipay in 10 years? The fundamental reason lies in that WeChat has stronger consumer stickiness than Alipay.

Fourth, the value of knowledge accumulation, that is, Internet platforms all possess the accumulation effect of knowledge or data, but not all knowledge data can realize cash-value. Value emerges only in the data with leading or exclusive advantages. For example, shared bicycle companies and Luckin Coffee can collect data, but their data is difficult to create value compared to WeChat and Taobao, even its value is not as good as commercial platforms such as Jingdong and Pinduoduo.

Fifth, the controllability of derivatives for business forms. All Internet platforms can produce derivatives, but can the derived industries gain competitiveness? Can enterprises effectively control their business forms? Theoretically, Mobike can add an electronic payment of its own. However, since Alipay and WeChat Pay are the pioneers in that market, Mobike’s electronic payment may find it hard to be accepted by the market, thus hard to become a source of value for Mobike.

In theory, it is difficult for enterprises weak in the above five aspects to gain competitiveness, or even to achieve sustained profitability. In this sense, they should not be qualified as unicorn companies. However, irrational forces do exist in market or business practices. Companies such as “shared bicycle companies” and “Luckin Coffee” have been cultivated into unicorn companies with weaker competitiveness. What stands out among such irrational forces is the “crazy” capital. It is known that capital is profit-seeking and dares to take risks.

First of all, Internet commerce, like all great innovations, features high pre-investment and the need to recover revenue periodically; therefore, financing functions as a “must-have” lesson for almost all Internet companies. It can be said that Internet development cannot survive without venture capital and so do great innovations.

Secondly, Internet commerce features hierarchical derivation, thus it is quite easy to form ideas appreciated by the “market”. In addition, almost all Internet companies have experienced cash-burning in the early stage and then the gradual gaining of profits. So it is easy to believe in stories of “yesterday once more”.

Thirdly, the hierarchical derivation and industrial integration of Internet commerce have also increased the difficulty for the public to learn about its business models and examine the design of business development. Some non-professional individuals have difficulty in identifying the authenticity of Internet commerce.

Finally, IPO has the amplification effect. IPO serves as the most preferred way of launching venture capital, together with several characteristics of Internet companies analyzed earlier, allowing a start-up to experience several rounds of investment relay during the process mainly from the angel round and seed round in the early stage to a later stage of growth investment and bridge investment. Each round of investment relay will boost the valuation of start-ups until the behind-the-scene investors go to the secondary market to cash in on their returns.

In such a long-term investment and premium valuation chain, some parties may be ignorant (due to the lack of knowledge and judgment on the actual value of the start-up), and some start-ups are inherently shameless (to intentionally deceive the public and the society based on limited public information and ignorance). Under the multi-participant pattern, “many hands make light work”, allowing the not-so-excellent enterprises to be cultivated into “unicorn” companies.

The emergence of such a considerable number of unicorn companies reflects the call of the Internet era, which in turn supports the creation and development of the unicorn companies. At present, the Internet is upgrading from being consumption-oriented to being production-oriented. With the derivation and processing of huge amount of data, humanity is about to enter the intelligence era. Instead of eliminating the features of the Internet era, the intelligence era will amplify and strengthen many of them. It can be expected that more unicorn companies will appear, and that they will advance with the times.

Zhang Yuchen, Professor and Doctoral Supervisor of School of Economics and Management, Tongji University