A trove of imported console games vanish from Chinese online stores

In the world’s largest gaming market, China, console games play a relatively small part as their revenue has been meager compared to mobile and PC games for years — at least by the official numbers (more on this later). There remains a community of hardcore console lovers, but they are finding it harder to get hold of devices and cartridges recently.

A handful of grey market videogame console vendors on Taobao stopped selling and shipping this week, according to checks by TechCrunch and online posts by gamers. Before we examine what might be happening here, a bit of industry history is needed.

In 2000, China banned the sale and import of videogame consoles as concerns over addiction in teenagers grew. Even with the ban, imported consoles still existed in the grey market targeting a group of loyal players. Meanwhile, the online PC and mobile gaming industry flourished, in part thanks to their affordability and the social experience built into their mechanics.

When China finally lifted its restriction on consoles in 2015, giants like Sony and Microsoft quickly responded by releasing Chinese editions of their products through local partners. Nintendo Switch hit the Chinese shelves in 2019 via a much-anticipated partnership with Tencent, which itself is the world’s largest gaming firm. But the grey market largely persisted because mainland Chinese versions of the consoles are subject to strict regulatory oversight, which limits users’ choice to a small friendly range approved by censors.

Many Chinese players thus resort to brick-and-mortar electronics bazaars and online marketplaces to find imported editions of PlayStation, Xbox, and Nintendo Switch, along with their games. These products normally enter China through parallel trading, the import of legitimate goods through unauthorized channels. The games that are brought in normally lack a Chinese gaming license, which is hard to obtain even by local publishers.

Several major videogame console importers on Taobao have suspended business. Screenshot: TechCrunch

It’s unclear how many imported consoles and console games were taken down from Taobao and what triggered the purge. Tgbus, one of the largest console game sellers on Taobao with 462,000 followers, currently has zero product listing. When asked by TechCrunch, a customer service staff said the store has temporarily halted shipping due to “a water leak in the warehouse.” When we pressed further, the person said it was due to “an electrical-equipment failure.”

Other vendors keep their responses vague, citing “special reasons” for the suspended services. One seller named the “Shanghai Gaming Console Store” said it suspended its business at the request of Taobao, without elaborating further.

Alibaba could not be immediately reached for comment.

The incident appears to inflict mostly console sellers with a sizable business at this moment. Imported cartridges and console devices can still be found on smaller Taobao stores and alternative platforms like Pinduoduo by searching the right keyword.

Some users see the move as China further tightening its grip on what gamers get to play. Over the past year, Apple’s China App Store removed thousands of games to wipe out games without China’s official greenlight. Other motives are politcal. Animal Crossing was pulled from grey market stores on Taobao and Pinduoduo after one of Hong Kong’s most well-known pro-democracy activists used the game as his protest ground.

Other users point out that customs officers regularly clamp down on parallel trading, which is designed to evade import tax because goods are carried by traders who appear as regular travelers. This isn’t the first time the console grey market has been hit, either. Some grey goods manage to fly under the radar before they attract critical sales. There are signs that the new Monster Hunter Rise, a Nintendo-Switch exclusive which isn’t available on the Chinese console edition, is stoking much interest among local players in recent weeks and may have driven some imports.

#alibaba-group, #china, #console, #grey-market, #nintendo, #nintendo-entertainment-system, #nintendo-switch, #online-marketplaces, #taobao, #tc, #video-game

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No taxation without innovation: The rise of tax startups

In New York City, if you order a toasted bagel with cream cheese at a deli, you have to pay sales tax. Ask for that same bagel unprepared? You won’t. In Illinois, candy is subject to sales tax, but candy with flour is considered a regular grocery item. Meaning: A Kit Kat is tax-free, but M&Ms will cost you extra. And in Colorado, your daily coffee cup is considered essential packaging, while the lid is not, making it subject to a nonessential packaging tax.

These examples may seem trivial, but they illustrate the idiosyncrasies of sales tax — a fee consumers pay on their purchases that must ultimately be reconciled with the appropriate jurisdictions. Though sales tax is arguably the most complex type of indirect tax, businesses must also contend with other indirect taxes such as use tax, property tax and value-added tax (VAT).

Given the market needs for tax compliance, it’s somewhat shocking how poorly companies are being served by the majority of legacy software companies.

Such taxes may be easy to understand conceptually, but their calculation is convoluted in practice — particularly for sales tax, which is governed by more than 11,000 unique jurisdictions in the U.S. alone. There is no reliable methodology businesses can use to calculate annual remittances based on previous years’ accounting formulas because local tax code changes as much as 25% every year.

For large corporations, sales tax compliance drives sky-high financial planning and analysis spending, and small businesses face an even worse predicament because they can neither afford outsourced tax preparation nor have the expertise to handle this filing. No matter a company’s size, failure to pay the correct amount of sales tax can result in severe penalties and even bankruptcy.

Now, a new legion of startups is emerging to help companies manage the intricacies of indirect taxes, including TaxJar, Taxdoo and Fonoa.

Why does this matter now?

Smaller businesses have, until fairly recently, managed to limp through tax season by selling goods and services locally, and thus operating within relatively consolidated tax jurisdictions. But e-commerce changed this in at least two profound ways.

The first is that even the smallest businesses have transformed from simple brick-and-mortar ventures to complex entities transacting in multiple places online, including via their own storefronts and websites, third-party vendors such as Amazon and Etsy, and wholesale channels. Previously, a small business may have calculated a single type of sales tax — traditionally for storefront enterprises. Now, they may have to calculate different taxes across an increasing number of channels and their resulting tax codes.

Second, e-commerce expanded companies’ geographic reach, allowing them to sell across state and country lines. Until recently, this was an unqualified advantage to small businesses, which benefited from outdated laws requiring most businesses to pay taxes only where they had established nexus, or physical presence. But the 2018 Supreme Court case of South Dakota v. Wayfair put an end to that, with the court ruling that businesses with digital revenue levels above a certain threshold must pay taxes in all states and municipalities in which they sell.

To a large extent, businesses have met the resulting increase in their tax obligations either sloppily or not at all. But the economic fallout from the pandemic is making such noncompliance far less tenable as state and local governments face fiscal shortfalls. With states traditionally relying on sales tax as a primary source of revenue (second only to federal receipts), local governments are beginning not only to enforce their tax codes more vigilantly but also to create new laws that broaden the scope of taxable goods and services.

Given that the financial losses of the pandemic are projected to extend for years, it is unlikely states will revert to their previously relaxed standards of enforcement. Instead, it is far more plausible that COVID-19 will prove an opportunity for states to find new ways to capitalize on sales taxes related to e-commerce.

Small and medium businesses need more options for tax compliance

#column, #e-commerce, #ec-column, #ec-fintech, #ec-market-map, #ecommerce, #finance, #online-marketplaces, #startups, #tax, #tax-policy, #tc

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Valoreo closes on $50M to roll up LatAm e-commerce brands

A new breed of startups is acquiring and growing small but promising third-party merchants, and building out their own economies of scale.

And while there are a number of such startups based in the U.S. and Europe, none had emerged in the Latin American market. Until now.

Valoreo, a Mexico City-based acquirer of e-commerce businesses, announced Tuesday that it has raised $50 million of equity and debt financing in a seed funding round.

The dollar amount is large for a seed round by any standards, but most certainly ranks among the highest ever raised by a Latin American startup — further evidence of increased investor interest in the region’s burgeoning venture scene

Upper90, FJ Labs, Angel Ventures, Presight Capital and a slew of angel investors participated in the round. Those angels included David Geisen, head of Mercado Libre Mexico; BEA Systems’ co-founder Alfred Chuang; and Tushar Ahluwalia, founder of Razor Group, a European marketplace aggregator, among others.

Founded in late 2020, Valoreo aims to invest in, operate and scale e-commerce brands as part of its self-described mission “to bring better products at more affordable prices” to the Latin American consumer.

“We were substantially oversubscribed and were therefore able to select investors that not only provide capital, but also additional know-how in key areas,” said co-founder Alex Gruell.

Valoreo joins the growing number of startups focused on rolling up e-commerce brands.

The company’s model is similar to that of Thrasio — which just raised another $750 million–  and Perch in the U.S. But Valoreo says its approach has been tailored to “the specific needs of the Latin American market and is specifically focused on the Latin American end customer.”

Another new company in the space called Branded recently launched its own roll-up business on $150 million in funding. Others in the space include Berlin Brands Group, SellerX, Heyday and Heroes.

But as my colleague Ingrid Lunden points out, “the feverish pace of fundraising in the area of FBA roll-ups feels very much like a bubble in the market — not least because none of these still-young companies have yet to prove that the strategy to buy up and consolidate these sellers is a useful and profitable one.”

How it works

Valoreo (which the company says is an extension of the Spanish word “valor,” meaning to add value), acquires merchants that operate their own brands and primarily sell on online marketplaces such as Mercado Libre, Amazon and Linio. The company targets brands that offer “category-leading products” and which it believes have “significant growth potential.” It also develops brands in-house to offer a broader selection of products to the end customer.

Like Thrasio, Valoreo says it’s able to help entrepreneurs who may lack the resources and access to capital to take their businesses to the next level.

Co-founder and co-CEO Stefan Florea says the company takes less than five weeks typically from its initial contact with a seller to a final payout. 

Then, the acquired and developed brands are integrated into the company’s consolidated holding. By tapping its team of “specialists” in areas such as digital marketing and supply chain management, it claims to be able to help these brands “reach new heights” while giving the entrepreneurs behind the companies “an attractive exit,” or partial exit in some cases.

We have different structures, always taking into account the personal objectives of the seller,” Stefan Florea added.

Generally Valoreo acquires the majority of the business, with the purchase price typically being a combination of an upfront cash payment and a profit share component so sellers can still earn money.

Looking ahead, Valoreo plans to use its new capital mostly to acquire and develop “interesting” brands, as well as build out its current team of 10 while expanding its infrastructure and operations.

The company is currently focused on the Mexican and Brazilian markets, but is planning its expansion into other Latin American countries where it has strong local support systems, such as Colombia, according to co-founder Martin Florea.

Our mission is to be a pan-Latin American player providing value to the entire region,” Martin Florea said. “Latin America in general and Mexico in particular are in a distinct situation which provides phenomenal opportunities for e-commerce merchants on the one hand but also presents particular challenges on the other hand.”

Those challenges, according to Martin Florea, include limited access to growth capital, a lack of specialized expertise in certain areas (such as supply chain management), limited opportunities to sell their business and pursue new ventures, as well as operational burdens and the lack of capacities to expand into new countries and marketplaces.

Valoreo emphasizes it is not out to compete with Mercado Libre, Amazon and other regional marketplaces but instead wants to partner with them.

“Without these platforms, this opportunity would not exist,” Martin Florea said.

Hernán Fernández, founder and managing partner of Angel Ventures, believes Valoreo “will add a lot of value” to the Latin American e-commerce landscape, which is experiencing both market growth and the fragmentation of the seller space.

Jüsto co-founder and CEO (and Valoreo investor) Ricardo Weder notes that the e-commerce market is at an inflection point in Latin America. According to eMarketer, the region was the fastest-growing e-commerce market in the world in 2020, with 37% year over year growth. However, it is a much more fragmented and crowded market compared to other regions, such as the United States.

This, Valoreo believes, provides an opportunity for consolidation.

“There are still many consumers that are not aware of the great variety of outstanding local brands that sell innovative products on marketplaces online,” Stefan Florea said. “In the U.S. or Europe e-commerce is the new way of shopping, offering an even greater range of products and brands than offline shopping. We firmly believe it will not take long until end-customers in Mexico and across Latin America discover all the benefits that e-commerce offers.”

#amazon, #angel-ventures, #e-commerce, #ecommerce, #funding, #latin-america, #mercadolibre, #mexico, #mexico-city, #online-marketplace, #online-marketplaces, #recent-funding, #ricardo-weder, #startups, #thrasio, #valoreo

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Embedded finance startup Banxware raises €4M seed

Embedded finance — the idea of offering financial products where customers are already congregating via white label solutions and APIs – isn’t an entirely new concept. In fact, in one form or another, such as point of sale credit, the concept has existed for years and long before Silicon Valley venture capital firm and media company (ha!) Andreessen Horowitz made it a thing. However, fuelled by cloud technology and a plethora of new fintech and Banking-as-a-Service startups, there is no doubt the embedded finance trend is accelerating.

The latest company to declare its hand is Berlin-based Banxware, which offers embedded finance in the form of loans for SMEs, in partnership with marketplaces, payments providers, and others. It launched in December and today is disclosing that it has raised €4 million in seed funding.

Leading the round is Force over Mass, and VR Ventures. They are joined by HTGF, and private investors in banking, payment and e-commerce.

Banxware says it will use the investment to develop and grow its embedded white label financial services offering, and expand its team. In addition to lending, the startup will also soon offer card-based products and other financial services.

Banxware’s tech and infrastructure enables any company to offer loans and other banking services to SME customers. The idea is to act as the link between banks (lenders), digital platforms, and merchants. Banks get access to hard to reach SME customers. Platforms, such as online marketplaces, can up-sell financial products beyond their core offering. And merchants benefit from speedy access to working capital.

“SMEs have a hard time to access capital when needed, especially when they are less than three years old or do not have the most pristine credit history,” explains co-founder and CEO Jens Röhrborn. “On top of this, loan applications, i.e. loan decisions and loan payout, still take several weeks in most cases.

“More and more sellers and merchants are using digital platforms through which they sell their products or process their digital payments. By using the recent historic data on these merchants provided by the platforms, we can lend against their future revenues”.

This has seen Banxware build an instant lending tool that includes AML and KYC compliance, and a scoring engine that analyzes historic platform data and data from third party providers, such as account information providers and external scoring services. The promise is an instant loan decision and loan payout, “all in less than 15 minutes”.

“On the lending side, we work with both balance sheet lenders and lending vehicles with whom we pre-agree on lending terms and loan decision criteria and on whose behalf we execute the loan decision,” says Röhrborn. “Merchants repay their loan in such a way that platforms subtract a certain percentage of the future merchant payouts”.

Röhrborn says the company’s instant lending tool is “only the beginning” and that Banxware will develop additional embedded financial services and expand internationally.

Meanwhile, the German fintech currently generates revenue by charging a one time fee for each loan that is processed through its platform and via a one off customization fee.

#banking, #banxware, #berlin, #cloud-technology, #credit, #e-commerce, #embedded-finance, #europe, #financial-services, #fundings-exits, #loans, #media, #online-marketplaces, #startups, #tc, #venture-capital

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Europe asks for views on platform governance and competition tools

The European Commission is asking for views on how online platforms should be regulated in future, launching a public consultation today on the forthcoming Digital Services Act (DSA).

This pan-EU legislative proposal, due before the end of the year, is slated to rework the regional rulebook for digital services, including tackling controversial issues such as liability for user-generated content and online disinformation.

Modernising and updating rules related to ecommerce and online marketplaces to foster competitive by ensuring a level playing field in digital markets is another stated aim. 

Whether the DSA will prove as divisive as the EU’s copyright reform remains to be seen — but the stakes are high indeed.  

In parallel today, the Commission is soliciting views on possible updates to pan-EU competition regulation, asking whether a new tool is needed to beef up enforcement powers in the digital era.

Rebooting Europe’s digital regulation

The DSA consultation, which runs until September 8, covers issues including safety online, freedom of expression, fairness and a level-playing field in the digital economy, per the Commission, which says it’s seeking input from people, businesses, online platforms, academics, civil society and “all interested parties” to shape the planned governance framework for digital services.

Of course it’s already heard plenty on this topic from tech giant lobbyists.

Facebook CEO Mark Zuckerberg even sat down for a livestreamed discussion alongside European commissioner Thierry Breton last month — only to be lectured on the need for digital giants to pay their fair share of taxes.

But the Commission wants businesses of all stripes and sizes to chip into the consultation. After all, the most dominant platforms have the most to lose from any change of pan-EU rules.

And perhaps especially from changes that result in defining a specific set of “responsibilities” for the largest platforms.

Commenting in a statement, Commission EVP, Margrethe Vestager, said: The Internet presents citizens and businesses with great opportunities, which they balance against risks that come with working and interacting online. At this time, we are asking for the views of interested citizens and stakeholders on how to make a modern regulatory framework for digital services and online platforms in the EU. Many of these questions impact the day-to-day lives of citizens and we are committing to build a safe and innovative digital future with purpose for them.”

“Online platforms have taken a central role in our life, our economy and our democracy. With such a role comes greater responsibility, but this can happen only against the backdrop of a modern rulebook for digital services,” said Breton in another statement. “We will listen to all views and reflect together to find the right balance between a safe Internet for all, protecting freedom of expression and ensuring space to innovate in the EU single market.”

The DSA package will contain a number of strands, with one set of rules focused on updating the EU’s existing eCommerce Directive — which dates back two decades at this point.

“Building on these principles, we aim to establish clearer and modern rules concerning the role and obligations of online intermediaries, including non-EU ones active in the EU, as well as a more effective governance system to ensure that such rules are correctly enforced across the EU single Market while guaranteeing the respect of fundamental rights,” the Commission said today.

A second component is aimed at ensuring fairness in European digital markets which have become dominated by a few large online platforms that act as gatekeepers.

EU institutions have already adopted one legislative measure aimed at platform marketplace fairness — due to come into force next month. But the Commission believes more is needed and is now exploring building on that foundation with additional rules to foster competition — potentially around (non-personal) data sharing.

“We will explore rules to address these market imbalances, to ensure that consumers have the widest choice and that the EU single market for digital services remains competitive and open to innovation. This could be through additional general rules for all platforms of a certain scale, such as rules on self-preferencing, and/or through tailored regulatory obligations for specific gatekeepers, such as non-personal data access obligations, specific requirements regarding personal data portability, or interoperability requirements,” it said today.

The consultation is also asking for views on other “emergent” issues related to online platforms — including working conditions for platform workers who are providing a service via these marketplaces.

Gig economy platforms continue to face legal challenges in Europe over their classification of platform workers as ‘self employed’, a status that reduces the benefits they are entitled to as a result of their labor.

On competition policy, the Commission has today published an inception impact assessment and opened up another public consultation — inviting comments on whether EU regulators need a new competition tool to allow them to address structural competition problems in a timely and effective manner.

The pace of competition enforcement vs the speed of Internet-enabled disruption has led to criticism that current remedies applied to problematic digital business practices come far too late to be effective.

Commenting on this in another supporting statement, Vestager, who also heads up EU competition policy, said: “The world is changing fast and it is important that the competition rules are fit for that change. Our rules have an inbuilt flexibility which allows us to deal with a broad range of anti-competitive conduct across markets. We see, however, that there are certain structural risks for competition, such as tipping markets, which are not addressed by the current rules. We are seeking the views of stakeholders to explore the need for a possible new competition tool that would allow addressing such structural competition problems, in a timely and effective manner ensuring fair and competitive markets across the economy.”

The Commission says it has concluded that ensuring the “contestability” and “fair functioning” of markets is likely to require a “holistic and comprehensive approach” — emphasizing that this should involve continued vigorous enforcement of existing EU rules (including the use of so-called ‘interim measures’, where appropriate; an old tool Vestager has recently dusted off and unboxed).

But — additionally — it’s considering supplementing existing antitrust rules with ex-ante regulation of digital platforms (“including additional requirements for those that play a gatekeeper role”); and the aforementioned possible new competition tool for dealing with structural competition problems that have proven tricky to tackle with current measures (such as preventing markets from tipping).

“The new competition tool should enable the Commission to address gaps in the current competition rules and to intervene against structural competition problems across markets in a timely and effective manner,” it writes.

“After establishing a structural competition problem through a rigorous market investigation during which rights of defence are fully respected, the new tool should allow the Commission to impose behavioural and where appropriate, structural remedies. However, there would be no finding of an infringement, nor would any fines be imposed on the market participants.”

Stakeholders have until June 30 to submit views on the Commission’s inception impact assessment, while the public consultation on the potential new competition tool is taking submissions until September 8.

Subject to the outcome of the impact assessment the Commission adds that a legislative proposal is scheduled for Q4.

Interestingly, for Commission watchers, the consultation on the possibility of ex-ante regulation of digital platforms — which is clearly forming part of Vestager’s thinking on ensuring functionally competitive markets, given it’s included in the competition reform discussion — has not been included in the competition consultation — but rather slotted into the DSA consultation, which is being led by Breton.

The two commissioners not only have very different personal styles but appear opposed on policy substance, with Vestager being comfortable voicing support for regulating digital technologies while Breton continues to express reluctance to do so, preferring to court industry engagement — and couching regulation as a last, unwelcome resort.

#competition-law, #data-portability, #digital-services-act, #e-commerce, #europe, #european-commission, #european-union, #margrethe-vestager, #mark-zuckerberg, #online-disinformation, #online-marketplace, #online-marketplaces, #online-platforms, #policy, #tc, #thierry-breton

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VC’s largest funds make big bets on vertical B2B marketplaces

During the waning days of the first dot-com boom, some of the biggest names in venture capital invested in marketplaces and directories whose sole function was to consolidate information and foster transparency in industries that had remained opaque for decades.

The thesis was that thousands of small businesses were making specialized products consumed by larger businesses in huge industries, but the reach of smaller players was limited by their dependence on a sales structure built on conferences and personal interactions.

Companies making pharmaceuticals, chemicals, construction materials and medical supplies represented trillions in sales, but those huge aggregate numbers hide how fragmented these supply chains are — and how difficult it is for buyers to see the breadth of sellers available.

Now, similar to the way business models popularized by Kozmo.com and Webvan in decades past have since been reincarnated as Postmates and DoorDash, the B2B directory and marketplace rises from the investment graveyard.

The first sign of life for the directory model came with the success of GoodRX back in 2011. The company proved that when information about pricing in a previously opaque industry becomes available, it can unleash a torrent of new demand.

#amazon, #andreessen-horowitz, #bain-capital-ventures, #business-model, #doordash, #enterprise, #extra-crunch, #goodrx, #health, #julie-yoo, #market-analysis, #marketing, #material-bank, #medicare, #menlo-ventures, #merritt-hummer, #online-marketplaces, #pharmaceuticals, #postmates, #sequoia-capital, #startups, #tc, #venture-capital, #webvan, #y-combinator

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