Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.



Wed, 10 Mar 2021 23:09

We dive into the history behind Meituan, the juggernaut Chinese "super-app" which dominates China's services economy, offering consumers everything from food delivery, restaurant reviews, travel booking, bike-sharing, movie ticketing, and countless other entertainment and lifestyle services all at the touch of a button. Already China's 3rd largest tech company by market cap (behind just Tencent and Alibaba), Meituan did $15 billion in net revenue in FY2019 and continues to grow rapidly. What makes it so special, and how were they able to become the market leader in such a competitive space? This story is packed with lessons that apply equally beyond China tech to high-growth company building and investing everywhere.

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The Meituan Playbook:

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1. Adding product offerings (post initial product-market fit) isn't losing focus. It's smart business.

  • A huge part of Meituan's success and longterm defensibility versus its literally thousands of past competitors is its ability to cross-sell customers across many different product lines. Meituan can afford to spend much more on acquiring and retaining a new user who'll end up purchasing food delivery, groceries, hotels, travel and more through the platform vs. standalone competitors in each vertical. Most western companies woefully misunderstand this dynamic. (Amazon being a notable exception)
  • Meituan enjoys an average of 26 transactions per user per year (vs e.g. Airbnb users which book an average of 0.5 transactions/year). With each additional offering, Meituan increases the number of revenue streams it can amortize its CAC over, while also offering superior experiences to customers.
  • Key to making this strategy work is having the discipline to follow the same playbook as any startup: launch new initiatives quickly, test and improve based on real customer feedback, don't let perfect be the enemy of shipped, and kill what's not working and move on. Meituan and Amazon's new initiatives often lack polish — but they either quickly bring in $billions of revenue, or they die and the company goes on to the next one. Again with few exceptions, western tech companies completely misunderstand how to execute this playbook effectively.

2. When you spot a market that's both large and growing fast — ride that wave!!

  • Chinese e-commerce was a 20% saturation industry in 2017 and still growing nicely. However real world services was only 5% online, and poised to grow even faster. Staying nimble to capitalize on this online to offline (or "O2O") trend allowed Meituan to accelerate while Alibaba was caught flat-footed. Today Meituan (along with its fellow Tencent portfolio company Pinduoduo) represents probably the biggest threat Alibaba has faced in its entire history.

3. Many still don't realize what a powerful moat (trusted) reviews provide in online platforms.

  • Once it merged with Dianping, review data became Meituan's biggest competitive advantage vs other food delivery (and other product line) competitors. A deep database of reviews creates an incredible barrier to entry: any competitor can standup a set of listings, but without trusted reviews those listings are just "flat". This same dynamic helped Airbnb successfully defend against European clones early in its life.

4. Old news, but always worth repeating: the days of China simply cloning American tech companies are long gone. Today it's China, not the US, that's leading innovation on mobile and the internet more broadly across many categories.

  • Ironically, Meituan's founder Wang Xing started his career as perhaps China's top Web 2.0 company cloner, and Meituan itself began as a Groupon knockoff. But to say the the tables have turned today is a massiveunderstatement, haha.

5. Meituan capitalized on the secular trend of China's growing middle class and mobile-first economy.

  • Meituan's growth followed the growth of China's middle class. They were able to capitalize on the emergence of Tier 2 and 3 cities that provided newly addressable populations.
  • Meituan was smart to pay attention to these non-Tier 1 cities from the very beginning. Founder Wang Xing realized that smaller cities where people were beginning to access the internet via mobile phones and internet cafes were a good fit for their initial group-discount platform.


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You've been a VC in my heart for a long time. I take offense to that and awesome, thank you. Welcome to season 8, episode 3 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts. Ben, you're a bio there. It's a little different this time. Congratulations, my man. Thank you. Very long, Seattle. Excited for the future of the Pacific Northwest. It's very exciting. Well, well-observed. Promotion to managing director. Thank you. And frankly, it's most exciting just to have a new $100 million early stage fund to invest in Pacific Northwest entrepreneurs who also might be acquired listeners. Well today we are talking about a company that frankly couldn't be further from the Pacific Northwest. Well, maybe a code. I suppose if you're on the east coast of the United States, you might be literally halfway around the world. But today we dive into a Chinese app that started as a group on clone by a founder who had previously started a Facebook clone at a Twitter clone. But this bike sharing Yelp-esque door dash of China is much more than a clone. This AI-powered delivery company is also a ride-sharing company. It's a real world supermarket, a merchant analytics platform, a fintech platform for those merchants who need loans, a travel booking app for consumers, and a way to buy cheap movie tickets. So what on earth is going on? So you're saying it's like door dash and Airbnb and square and and Expedia and Uber and InstaCart and more. Yelp, Fandango, Safeway, the list goes on and on. So Maytwan is what people have dubbed a super app. And if you're confused, well, so were we before we started the research. So over the course of this episode, we will dive into unpack this curious company, how it became China's third largest tech company behind only 10cent and Alibaba. And it was founded over a decade after each of those two companies. It's pretty crazy. It's like, frankly, amazing that it's in the same category as those or are quickly rising into that same category. And of course, wildly displacing bydo, the classic third in the big three Chinese tech companies. Alongside Pinduoduo as well, which we covered last summer. This story is honestly amazing. I mean, we'd heard we'd reference Maytwan on the show. Oh, it's the super app. It's this really interesting Chinese thing that is unlike anything in the West. This story is incredible. Frankly, a shame we haven't told it before now. Indeed. Well, that's why we have eight seasons of acquired. Well, are you an acquired Slack member? If not, what have you been waiting for? It is a spectacular community discussing, of course, all things acquired and recent episodes. But more importantly, it is just a genuine and smart group of people having thoughtful, nuanced and respectful discussion about the tech and investing news of the day. You can join at slash Slack if that sounds like your cup of tea. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akio Marina before we did our Sony episodes that's this incredible primer. You know, he's actually a good example of why people listen to founders until acquired because all of history's greatest entrepreneurs and investors. They had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest such a printer to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas. And now he's gone and we can use those ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well, listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. Well, lastly, to keep this short and sweet, if you are not an acquired LP, you should totally become one. Aside from all the things we tell you about the LP program on every episode, we just shipped a killer episode on the state of SAS in 2021 with emergence capitals newest general partner Jake Safer, where he dove deep on their recent investment thesis, deep collaboration. Do you have to say deep in a deeper voice, deep collaboration? Deep collaboration. I'll handle deep collaboration. It's also been a big month for acquired guests and hosts in terms of promotions to general partner. It is. The wave is upon us. Well, we of course explored the insane state of tech valuations right now in the frenzied market we are in with Jake as well as deep collaboration. So tune in LPs or feel free to join at slash LP. If you are not, and we can't wait to see you there. Well, David, before you take us in listeners, as always, this show is not investment advice. David and I may have investments in the companies we discuss on this show. And it is for educational and entertainment purposes only. That's my disclaimer. It is your show to run now. Take us in. Tell us everything. Well, I sure hope it's for both of those purposes, I mean, equal measures. Okay. Before we dive in, we have to say a big, big thank you to the Tech Buzz China podcast. They did an excellent job covering Maytwan and its crazy story. I think among all English language reporting on China tech for Maytwan specifically, they did a fantastic job, along with as always, the evolving for the next billion podcast by GGV and Bernard Leong at over at Analyze Asia. He used all of their work in this podcast. They're all fantastic. Definitely go check them out if you follow China tech. And you definitely should be following China tech, no matter where you live. Okay. So Maytwan, we start history and facts back in February. We're in early March now. I'm right about the same time of year of 1979 in Longyan, China, which is a small by China standards, at least city of about two million people in the southern part of the Chinese coast, kind of not too far from Hong Kong, but like a and Shenzhen six hour drive sort of north of there. A few sense of Chinese geography. Are you like on Google maps? Yes. Okay. Like this is this is a very descriptive explanation here. Well, the more these episodes we do, the more I get to know China's geography. But yes, I was on Google maps. And we start so in February 1979 in Longyan with the birth of a baby boy named Wang Xing and Wang is going to be our protagonist here, one of our protagonists through this story. And this was a pretty interesting time and family he was born into. So this was right at the beginning of Deng Xiaoping's reform and opening in China that we talked about on the Alibaba episode a lot. I also talked about on the 10th and episode. And Xing's father was one of the very kind of first early generation of entrepreneurs in China after the reform and opening. You know, part of that let some people get rich first doctrine. And so his father owned a cement factory. So a long way from a tech entrepreneur, but he was a real like small business entrepreneur in China in the 80s and 90s. So Xing grew up, you know, in this sort of new middle class, upper middle class family. And in middle school, he gets interested in computers like so many of us. And he convinces his parents to buy him a clone. This is going to be appropriate of an Apple too. And then shortly thereafter, he convinces them to upgrade to a PC. Wait, there were Apple too clones. Of course there were. It's China. So I don't know if it actually ran Mac OS, but it was, you know, some like knock off of an Apple too. Wow, crazy. Totally crazy. So then he upgrades to a PC. And he also, and this is pretty unique, he convinces his parents to get him a modem. So this is in like the early 90s, the internet, you know, was barely a thing anywhere, but especially not in China as we've talked about on previous episodes. So he starts going online and doing what early internet users in China did at the time was they would go on the kind of proto message systems, the Bolton board systems in China, which literally like every future Chinese tech billionaire was hanging out on these BB. I know. I feel like I'm like, I swear to God, I've heard this story before. It's like, I don't know, like Kupa Cafe and Palo Alto or something. It's like literally all of them. They're all hanging out on these BBS's pony ma's there, Jack Ma's there, William Ding from Daddy's is there. Of course, Colin Wong from Pindu Oduo is there. You just named five of the 10 most valuable Chinese companies. Totally. Or at least Chinese tech companies. It's amazing. So she's things there. He does very well in school. He ends up going to Singhua University in Beijing, which is one of if not the best university in China where he studies electrical engineering. So he's like very much on the path here. He graduates in 2001 and he does what every due to fall, you know, future Chinese internet billionaire would do. He goes to the US for grad school. Didn't you go to university of Delaware? Yeah. So this is where his path diverges a little bit. And David, like this is what 15 minutes from the hospital where you and I were both born. Yeah. And it's like probably 15 minutes from the hospital. I was actually born in Philadelphia. You were born in that. That's right. But you're Christian. Right. Next door neighbor or something was a doctor at the hospital. I was born. It's crazy. But I went to high school in Wellington, which is the biggest city in Delaware. Let me tell you, Delaware at this time, like, you know, I love it. It's a very beautiful place. But like I was there going to high school at the same time as Sching was going to grad school at UD, you know, 30 minutes away. This was not an internet hotbed far from it. It was an engineering hotbed. Interestingly enough, with DuPont and Gore, with all the sort of materials and mechanical, but no, like it actually a pretty good CS school later down the road, but not at this point. No. Really nobody is thinking about starting tech companies in Delaware in 2001, 2002, 2003. I can guarantee that from first hand experience. So I have to imagine that this was like pretty serious culture shock for him. So he stays a couple of years. But then unlike many of the other personalities we just talked about, he ends up dropping out. Because he wants to get into tech and the internet and he thinks, you know, maybe this isn't the right place to do it. And in 2003, this website does show up among students on the University of Delaware campus. A new kind of hot social networking site. I think they actually raised some money from some pretty prominent venture capitalists on university campuses and seeing as like, this is it. I have found my calling. I'm going to go recreate this in China. Of course, we're talking about Forenster. I'm going to say, I thought Facebook was starting in 2004. Yes, yes it was. Quick diversion down Forenster. Isn't there like some affiliation with like Reed Hoffman and Mark Pinkis? Like isn't the Forenster story deep into people who went on to build, you know, phenomenally successful social products later? I think so. I always give the Forenster story and the Friend Feed story mixed up. Oh, that was Brett Taylor. Yeah, that was Brett Taylor. And that was like after Facebook. That was like a 2006, 70. It was like an aggregator, right? Yeah, yeah, yeah. Let's put a pin in this. I think we owe Forenster an episode or at least an LP episode. Yeah, so we got to dive into the history there, especially because it would go on to seed Maytawant. So she leaves Delaware, he moves back to China, he goes back to Beijing and he hooks up with some of his former single classmates and he starts duo duo you apologies if that's not the exact correct pronunciation. Yeah, we probably need to say that for several things on this episode. Yeah, several things we apologize. We're trying our best. He translates as many friends and the idea is he's going to just like he saw Forenster kind of take hold of the UD campus. He's going to target college campuses in China, build up this social networking site. Unfortunately, like Forenster, it doesn't really work. It's probably too early for Forenster in the US. In China at the time, college students, yeah, they probably were using computers, but you know, your average person did not have access to a PC. Mobile was still distantly on the horizon. So he tries to pivot duo duo you into a sort of different kind of service, still for students, for Chinese students studying abroad to kind of stay in touch with each other. That doesn't work either. But then in 2005, Ben, as he said, Facebook arrives on the scene and so she goes like, yeah, okay, I've got it this time. And he realizes that maybe he made a mistake the first time. And that was that he didn't clone Forenster exactly thoroughly enough. He's not going to make that mistake this time. So he and the team, they create a new site, they call it Xiao Ne, which literally means on campus. And they take Facebook, they take Facebook, the And they recreate it to the exact pixel, like the same shade of blue, the same text, the same layout, the same everything. Literally the early versions of the site had the footer at the bottom of Mark Zuckerberg production. No way. How do you clone that? Is it like they didn't know what it meant? So they were like, you definitely do it. Because people in China were hearing about Facebook. So the idea was like, let's convince people this is a thing. We're going to pretend to be Facebook. Fascinating. Amazing, amazing. But it works. A lot of people start using it. A lot of Chinese students start using it. It works so much that just like the real the Facebook, they need to start buying servers more than they can afford to pay for themselves. I feel like I'm watching a knockoff of the social network. It is totally a knockoff of the social network. This is so great. It's even better by the twist that this story is going to take later on. So they probably try and go raise money. They can't raise money. I bet VCs at the time are like, this is crazy. You literally say a Mark Zuckerberg production at the bottom. I'm not going to invest in this. Well the Chinese venture ecosystem is also dramatically underdeveloped. I mean, you think Sequoia China only started in 04. And like, I think the venture ecosystem before they got there certainly existed. And it wasn't anything like what the US venture ecosystem looked like in era. No, and I don't think it was particularly risk seeking. We'll get to this later, but yet, Dian Ping actually was one of Sequoia China's first investments. And that wasn't until 2006, which is the same time frame as this. And David, your drop in names we haven't gotten to yet. May Twan will eventually emerge with the on ping become May Twan, Dian Ping and then drop the Dian Ping. It's cleaner and go just to May Twan. And that's how we get that. Yes, you already are putting in an interesting point that is the company that they ended up urging with and buying later in a mega crazy merger. That'll be a huge point of this episode already existed by this point. And this guy is working on a Facebook clone. Totally. So what they decide to do, they end up getting an offer from another entrepreneur in China named Joe Chen to buy the company. So they sell the company to him for $2 million in October 2006. And Joe obviously wouldn't have bought it if he didn't see the potential for this thing. And the Facebook of China, that sounds like something this could become. He's like, well, but the name though, Facebook already at this point is starting to expand beyond colleges. And if you really want to go big, you want to be the Facebook for everything. And so this name of on campus, see, not so great. It's changed to a new one that, you know, a new one that incorporates everybody. Literally, why don't we call it everybody? Why don't we call it Renren? So yes, oh, this became Renren. This became unbelievably Renren. This is Renren. Whoa. That we're talking about. And David, what is Renren? Renren is the Facebook of China. I presume many listeners know about Renren. It's a public company, but yeah, they became enormously successful. Literally we're called the Facebook of China, which is funny, given that they started as a pixel for pixel clone of the Facebook of China. And they raised a bunch of money from Softbank and Masha back in 2009, 2010. And then they went public on the New York Stock Exchange in 2011. Before Facebook, they were the Facebook IPO. Before Facebook, they raised $740 million in the IPO at almost a $6 billion market cap. And Wang Xing created the whole thing, but he sold it for $2 million. Which you could justize him for, but it actually was the right decision if you knew what he was going to go on and create and how much more valuable that would become. 100% the right decision. I mean, it was either sell it or it was going to die. And he's still a kid, right? And he gets $2 million. Great. So what does he do? He says, guys, I can do this all day. This is still like 2007. I'm just going to spin a wheel and like roll some dice, pick whichever US internet company, web2.0, you know, hot company. I'm going to recreate. Let's go on to the next one. So he sold, he sold what would become Renren at the end of 2006. By the beginning of 2007, he's back in the game with Funfo, which literally means have you eaten, but it's a kind of idiom that's more like, hey, what's up in China? What do you think that is? What is the network that people are using to send, hey, I'm eating my breakfast and my breakfast is Twitter. It's Twitter. He creates Twitter again. It's just like at this one is supposedly, I didn't actually go look at these screenshots or whatnot. It was, I think even more insidious that you could like clever would be another way to put it that you could actually think that you were using Twitter based on how they did the domain names and stuff. It also becomes a huge hit. So we're talking about 2007. Twitter launched in 2006 out of Odio, like midway through 2006. Funfo gets 2 million users right off the bat. So that may have been more users than Twitter at the point. It's crazy. Unfortunately, though, for Wang Xing, it's so successful that it attracts the attention of the CCP because it's like Twitter. You can say whatever you want on there and people are spreading political dissent on there. So the CCP shuts it down for a period of time. I don't know that this is exactly, but I think it might have been like 12 or 18 months that it was shut down. It's honestly amazing that Ren Ren didn't get shut. I mean, I'm sure that the deal was struck there so that you get to exist as long as we get to have some content moderation on there. But the fact that he was able to build and sell a successful social media company in China is kind of amazing. Yeah. Actually, it's a good point. I didn't look into this, but maybe part of selling it and Joe getting involved was maybe around that. But I don't know. That's speculating. So Funfo gets shut down. And then it does eventually reopen and I think it's still live today, but in the intervening era, Cena, Weibo, and Tencent, you don't move into the micro-blogging space and it doesn't become a winner. But hey, long shins like, well, second time, I guess that was technically the third time he had Friendster and then he had Facebook and then he had Twitter. That didn't work. Okay. I'll go on to the next one. So now we're in sort of late 2009, early 2010, and there is a very particularly obvious US tech company, tech in quotes company that makes sense to clone at this point in time. Am I thinking of the right company? They were the fastest ever company to a billion dollars in revenue. I also thought that billion dollars in revenue, same thing as you. I went and looked it up as fastest ever to a billion dollars in valuation at the time. Very different than revenue. We're talking about Groupon, of course, which took the world, took the US by storm in the late 2009, early 2010. People are losing their heads in the tech community for this company. Completely. Completely go and, God, I mean, now it's kind of cute, right? Like companies, we know companies that are valued at a billion dollars before they've, you know, come out of stealth. But at the time, it was, you know, when serious A's were getting done at like a $6 million post that a company, you know, a year old would be worth a billion dollars. Completely lunacy. And also people were when you say tech company in quotes like Groupon took scores of salesman pounding the pages in order to go and convince local businesses to do this thing. Their churn rates were terrible because it was awful for the businesses and they would leave immediately. They had this awful cost structure, this awful retention lifecycle problem with customers. But they had so much capital in relative to other tech companies that like it was go-go time, pump it all in. Yep. Well, it was, you know, revenue, they probably did hit a billion in revenue pretty quickly because it was one of those things where like you could pump capital in and get revenue. You just didn't get any profits out of it or anything defensible. So in March 2010, Wang Xing and the team incorporate Mei Tuan coming from Mei, which means beautiful and Tuan, which means together, beautiful together. And at this point, you know, he's developed, despite his not yet, you know, hitting it big with his cloning factory, he's developed quite a bit of a reputation in Chinese tech entrepreneurial and venture capital circles and the Chinese VC industry has matured a lot by 2009, 2010. So right off the bat, they raised $12 million from Sequoia China when they launched in early 2010. And then a year later in the beginning of 2011, they raised another $50 million from Alibaba. So this was pretty big. Again, these numbers seem quaint today, but at the time, like $12 million essentially seed from Sequoia and China, like that's huge. You're entering this mega hot space. Then you raise 50 million bucks from Alibaba. Like this company is crushing it. And we'll talk about this more later. So I just want to tease it here a little bit. You know, raising money from an Alibaba, $0.10, I guess we used to say buy-due, but it hasn't come up much in this episode or frankly in recent conversations. They're a VC and a big tech company. They're, you know, they're a fang company and a VC all in one. And so they give you a ton of capital because they have a ton of capital. And then they can also really help your business. I don't want to get too far ahead of my skis, but for anyone wondering, Alibaba, why are they leading the series A? That's how China works. That's very much how China works. So there's just one problem though, which is that for all of Wangxing's capability, vision in a certain sense, it really is vision and knowing what to clone and how to make it adapt it for the Chinese market, all the capital behind them, all the great resources. He's not the only one who has this idea that, hey, Groupon might work in China too. In fact, he's not even one of like a dozen or one of like 50 or one of a hundred. He is literally one of five thousand entrepreneurs in China who would have the same idea and start Groupon companies. You think we're exaggerating. This period is like known in Chinese tech history as the period of the quote unquote thousand Groupon war and thousand is underestimating. There were five thousand companies at one point twenty to thirty new Groupon clones getting started every single day in China, including Groupon itself, which did a JV with Tencent to enter China, which you don't need to enter China. You got to do it with Tencent. They do a JV. I think if anybody can succeed here, it's Groupon called Gauping and this just turns into like this becomes a blood bath on the order that like is unbelievable. Many people in the US, you know, in Western markets think, oh man, food delivery in the US, that was a blood bath. There were like four different players that were going after this. China scale is all we need to say. It's like, oh, in that previous company we're talking about, it's like, oh, well, they had only two million users. Everything in China scale is so much bigger and faster and more competitive and you know, more gritty and I mean the 996 thing is real. Like if you hit on to something, you better be working 99 hours a week, six days a week or else someone else is going to with your idea. Yeah. Well, definitely somebody else is going to. So the other thing, you know, like you said, Ben, the nature of the Groupon business is there's not really any tech involved. Like you need a website basically, but the business is local salespeople going to merchants, restaurants, karaoke bars, massage parlors, you know, and the like and walking in the door and signing them up to get on Groupon and then running marketing stunts, you know, in local cities getting users to sign up. And every city is just as hard to sign up as the previous city. Like you don't really have scale advantages by being already in 50 markets. It's just like, well, no one's in this market yet. So it's war to win that market. Yep. Now, unlike many of the other thousands of competitors, wang shing figures out in this process, you know, people were thinking up until this point, you got to remember like the technology adoption curve, the computing adoption curve in China looked very different than the West. You know, most users in China never experienced the internet on PCs. They just went right to mobile, right? And at this point in time, even that was only just starting to happen. So the people who did use the internet in China were in the tier one elite coastal cities in Beijing in Shanghai in Hongzhou, you know, the big insenjin in Hong Kong. People that had access to computers. So most of these startups were focused on those cities. But wang shing realized, hey, the tier two, the tier three, the smaller cities, people are starting to get mobile phones or they have access to the internet in internet cafes. And this product, the Groupon product is actually a really good fit for those cities. So he and the company expanded to many, many more cities than a lot of their competitors. And that was one of the key things that helped them. I won't say win because nobody won here, but survived. Become one of the few remaining last standing. Become one of the few remaining last standing companies. And also, you know, having Sequoia and particularly Alibaba capital and might find them helps a lot. But by the end of 2011, so this whole cycle plays out in like one year, maybe 18 months. By the end of 2011, there are just a very, very, very small number of these companies left. There's Maetan, there's the operations of the BAT themselves, which they have small operations, but mostly they've invested in companies. And then there is a very, very different company that is still left standing called Dianping that we've referenced. Yeah. Which is fascinating for them watching, you know, this thousand Groupon war come up around them. They're not in that space really. They had to pivot into that space. It's so fascinating thinking about if you are running the Dianping business, like what do you do with all that means happening around you? In a very near adjacency? Yeah, it's funny. We'll tell the story now. I mean, I could maybe argue they shouldn't have gotten into this at all because they had a great, great business. But the net result of them getting into it is that they then become Maetan Dianping and now they're the fourth largest internet company in China. Okay. So unlike Maetan and Wang Xing, who we're just unabashed about copying, it's like that was their thing. They're like, yeah, we copy. We do it better. So we do. Dianping, which literally means reviews in Chinese was actually like a genuine innovator. I don't know if they were unique among Chinese tech companies in this era, but they were certainly special and were and are an incredible internet company. Some people sort of derasively at the time would call Dianping the Yelp for China, but A, it wasn't is way more than Yelp and B, Yelp was the Dianping for the US because Dianping was founded in 2003 and Yelp was founded in 2005. Totally. It was crazy realizing that in the research. I'm like Yelp for China. This company started like when I was entering high school. Yeah. Back when Wang Xing was still at the University of Delaware, who was when Dianping was founded. So the founder is this super, super sharp guy named Tao Jiang. And Tao was, so he was on the evolving for the next billion then called 996 GTV podcast and talked about his journey. Great episode. We'll link to it in the show notes. So he had been a consultant in the US and then a technology consultant and then went to Wharton and did his MBA at Wharton and he had been planning, he graduated in 2003 and he had been planning kind of like all the, you know, future internet billionaires at the time that he was going to go back to China after doing his MBA at Wharton and he would pick a US tech business bottle to clone and you know, raise money and run that playbook then. But unlike Xing who is very confident in his abilities, shall we say, Tao is, he kind of looked around at the landscape in 2003 and he was like, I don't know all the good ideas have already been cloned already. Like, I don't know why I would be able to do something better that's already being done in the US. But I do kind of want to start a company. You know, I've had all this great experience in the US and you know, one thing that I really like doing while being an MBA student in Philadelphia, not far from the University of Delaware, is I would use this as a Gat guide when I would go out and you know, go to restaurants in Philly. I wonder if there's some innovation to be done there about bringing, basically bringing Zagat online and you know, the thing is in China restaurants are kind of different and there is nothing like the Zagat guide in print or online and it actually would be way more useful because in China, you can order pretty much anything at any restaurant like you really, really want to know what the good stuff is in each restaurant. Otherwise you might order, they might have four or five fantastic dishes that they do better than anywhere else. But when you get the menu, it's literally a Chinese menu. It's like a book you could order anything you want. You don't really know. I need kind of a guide to all these restaurants. He's like, okay, well, maybe this could be useful. I'll code it up. So he moves back to China after graduating and he moves to Shanghai, which was not a tech hub at the time. And he codes builds the website himself. Wow. I didn't realize he was a like technical founder. Yeah. I believe he had done technology consulting before Wharton. The story is he built it himself. So like super small scale, small ambition. Like he wants to build a company, but he's not thinking like Wang Xing here. It takes off like wildfire. And in contrast to the Group Hunt business model, online reviews for restaurants and in particular for dishes within restaurants is actually an amazing internet native business because of the asset that you build. Yeah. It has an unbelievable moat around it. If you really hit the critical mass of not just restaurants, but then the dishes at each place that are good, like who can compete with you once you know every restaurant and every dish, especially when those restaurants have a Chinese menu with a zillion options on them. Like this is a pure sort of internet native data play. Yeah, so he does you know, end up hiring and building a company around this, which will get into an insect. But they come up with a bunch of key innovations. So Yelp hasn't even been started yet. And they have, you know, so it's ratings and kind of a guide to restaurants. But like you said, Ben, it's not just the restaurants. It's the dishes at each restaurant that you can individually rate. You can also rate and see category ratings for each restaurant like the food, the decor, the service. So you want to know like, you know, go ahead Yelp. The thing that sucks about Yelp is like, there's a four star restaurant. Every restaurant has a four star restaurant. Why is it four stars? Is it that like the food is really good, but the service sucks. Yeah, and they've tried to get into this. But yeah, I think it's safe to say Yelp has just not executed well as a public company. I mean, in the last five to 10 years, it's just been disappointing. Totally. Very disappointing. Then there's stuff like, you know, on Yelp, you see the dollar signs even on all US review platforms. Like, oh, this is a three out of four dollar sign restaurant. Well, what does that mean? Like, you know, so on Dianne Ping, you see the actual average price of checks of bills at restaurants. So you can be like, oh, yeah, I know exactly what this price is. It leads to much, much, much better discovery. They focus on photos and even short video like way before Yelp or Google Maps or anybody realize that was important. Yeah, I was reading that Dianne Ping is in some ways a reviews hub like Yelp. But in other ways, it's a content business that they're actually good at sort of building a massive trove of curated content and presenting that in a thoughtful, beautiful way to the user. Yeah. I mean, this whole idea, you know, the Instagramming of food, it didn't start with Instagram. I mean, Dianne Ping in no ways is Instagram, but like that's kind of where it started. Like, oh, I'm going to take a really nice picture of this meal that I'm about to eat at a restaurant. And I'm going to put it in my review on Dianne Ping. They also go much deeper into the value chain. This I think was one of the things that Yelp whipped on more than anything else was on Dianne Ping. You see the reviews, but you can also book a reservation at a restaurant. You can order ahead what you want to eat at the restaurant. You can get discounts at the restaurant and they do go in a small way into delivery from the restaurant. It never made any sense to me while all those are separate businesses in the US. You got Yelp, you got Open Table, you got GrubHub, all the elements were there, but it's such a bad experience for the consumer to do that across three separate apps. So Dianne Ping takes off spreads like wildfire and Shanghai and then bleeds out to other kind of tier one coastal elite cities. Like we said, it becomes one of Sequoia China's very first investments. It's a series 1.5 million dollars from Nielsen in 2006. Do you know what Sequoia China's first fund size was? I don't know, I can't remember if Doug said on our episode. My sense is it was still a large fund. This million and a half dollar check I do not think was like a big bet for them. No, no, no, but this was not a capital intensive business. And then do you know who leads their series B? Is it Google? It is Google. Yes. Tech-China strategic investor in China, not by you, not Alibaba, not Tencent, it's Google. And Google who can't do business in China at this point. So at least I don't think they were. I think this was right before they got kicked out of China. So how did this happen? Because I remember seeing this and I sort of just like accepted it at face value because like, yeah, Google, GV or Google capital or capital G has been investors in these companies. But like, right, this was what, 2005, 2006, or in early 2007, what was going on? I don't know, I don't know exactly how it came to be other than the nature and dynamics of the Tian Ping business was very much like Google. Like, they sold advertising much in the same way that Google sells advertising. It was an educational high touch, very high margin experience. You know, they didn't have feet on the street at local stores. All the assets, you know, it was, it was an internet business. It was great. It was Google investing in other Chinese companies at this point. Not that I know of. I don't know how the relationship came about. Maybe perhaps through Sequoia because of course, Sequoia was along with Cliener, where one of the TV season Google and on the board and perhaps that's how it came about. So the Amping goes along. It's doing great, building a wonderful high margin internet business. And then 2011 hits and the thousand group on War era. So then all of a sudden, you know, they've had the food and restaurant market in China, at least in Tier 1 cities, the internet food and restaurant market completely to themselves with this wonderful business that market didn't even exist in Tier 2 and Tier 3 cities. And now you've got 5,000 competitors, including this crazy Wang Xing guy backed by Alibaba, also backed by Sequoia, going around with these foot soldiers. So they do what they call them, they're like armies going into these restaurants and be like, hey, sign up for these group ons. So crazy, such a terrible, terrible business model. Terrible business model. So Dion Ping is trying to like, gosh, what are we going to do? How are we going to compete with this? They know they realize that this is a completely different company, completely different DNA, much worse business to get into. Not to mention they're not even in the Tier 2 and Tier 3 cities, but they kind of decide like, well, crap, we got to play the game on the field. Right, is this the wave? Is this the technology shift? And interestingly, it wasn't a technology shift. It was like a societal behavior shift. The technology shift was to mobile at this point, which is crazy to think about for the first six, seven years of Dion Ping, six years, people were just using it on PCs. Totally. And mobile wasn't really a thing yet, or at least not in the smartphone way that we know it today. But yeah, what they chose to sort of react to was, ooh, there's this big business model transformation going on that we need to be a part of. And other companies are going to steal our customers. And I think the really strategic insight that they have, which because they do, despite having much less capitalization and a different business model, it's them it may turn at the end of this that are left standing. The strategic insight they have is that because we have this other, you know, for lack of a better term, Yelp like business, our Dion Ping business, because that's what it is. Yelp is the Dion Ping like business, the inferior clone. We have more A touch points with consumers. So we can in theory acquire consumers better. They're coming in through multiple front doors. We'll have to go spend and subsidize to get them in through the front door for a group on product, you know, for new customers in new cities. But for our existing customers that are already using us, you know, we've got the free real estate right in front of us there. Every time they want to go out to eat, they're going on Dion Ping. It's like, okay, great. They've got an advantage there. They also have a in the medium to long term capital advantage in that the Dion Ping business is a great cash flow dynamic, you know, high margin business, which can be used to fund in a non-delutive way. Whereas everyone else is just taken on as much capital as they possibly can to compete with us. And then finally, at this point, I don't know how much this was the case. Certainly it is the case today. They have this huge data asset, right? Like they know what consumers like because literally the customers tell them. And then if you've been a Dion Ping user for a long time, they know which restaurants, which karaoke bars, which massage powder, which, you know, experiences you like. And then for new users, you can do collaborative filter, again, AI and whatnot and like predict pretty well what people are going to like. That's a huge advantage in this business. Yeah, if you can structure data that was previously unstructured, there are so much more interesting things you can do with it. Like understand what people's preferences are in order to target them with different offers. Yep. Yep. So by the end of the dozen Group on War, it's Maytwan, it's Dion Ping left. But they're kind of sitting there looking at each other. You know, both of them obviously very smart in their own ways and they're like, huh, this whole group buying business, you know, we've won. We've gotten a scale or revenue numbers are much bigger than they used to be. But like we're not getting any technology leverage out of this business. I mean, literally it is a discounts business. We add another hundred million dollars in revenue. Very little of that is flowing to our bottom line and our cost structure margins are not improving. We need every new restaurant we sign up. We need more people in our sales army. Every new customer, literally the whole business is we're subsidizing customer experiences. Tao actually says publicly at this point that he predicts even at the end of this that he predicts the entire group buying space is just going to die that there's no future in it. And Group on had gone public. Oh my gosh, I'm doing this research. Just brought back so many memories. Remember when Group on went public and that was like literally the high watermark, they never traded above their IPO price. I remember when they fired the CEO and they went Andrew Mason one, you know, left to go spend more time with his family just kidding the board fired me. That moment sticks in time for me as a pivotal moment in tech history. Such a character and so like not his fault too. Like it was just a bad business. So their market cap was down 90% from IPO price within like eight to 10 months. Wow. So that's the moment that we're sitting in here. And this is now late 2012. And there is this interesting thing going on. I have thought before doing the research that the whole food delivery online to offline you just sort of is which is the tiny sort of version of talking about this originated in China and that it was door dash and Uber Eats and Postmates that sort of copied it here in the US. It basically emerged at the same time in both places. So right around the same time as Tony and Stanley and the Andy and crew in Evan at Stanford were starting to think about food delivery and door dash was the same time that made to on Indian finger kind of looking around me like hmm. We have all these restaurant customers. We have all these people who visit our properties who are consumers. Is there something better we can do here? Is there something better we can do here? And D.D. of course existed at this point in China and Uber in the US. And so you have this whole new you know the it's like burned in my memory of like the great why now of door dash of like hey it's about the labor supply that has mobile phones that we can now bring on these gig economy laborers and direct them and coordinate them in a way that was completely impossible before well this is existing in China too now with ride sharing and D.D. So they both go hard into basically converting this failed group buying business into a food delivery business. And so did Dion Pings still have sort of a successful Yelp like business going on at this point? And so they continued from 2003 all the way through 2021 in the future and it's arguably one of if not the most important Linchpin of the whole combined company. Yeah. It's fascinating because as you just repainted there you know it was Tony and company at door dash thinking about this. If you rewind further back of course you have Grabhub and Seamless and I think just eat in the UK. Yeah. Exists already at this point. And there was a player in China that will get to in a minute. Oh interesting. But of course they didn't actually have the delivery fleet themselves. They were just the you can order with us and then it'll be on the restaurant to take care of whatever they want to do. It's also worth noting you know in the US how quickly we forget that Uber Eats totally stole door dash business model. Door dash came up with something Uber Eats was doing something completely different and they were like oh no shoot that. And that's actually even better for us given the fact that we already have all these drivers. So all this to say I think you are totally right to say the discovery sort of happens simultaneously with door dash and me Tuan and Dion ping. But it totally is worth noting that like food delivery wasn't new. It was organizing food delivery in this way that was new. And you hit on one really important thing and then another one that is a totally the same dynamic with these companies. Well the one that's most the same is you know Tony and teams core in say with door dash one of their core insights was suburbs like hey you might think that this food delivery would only work in a dense city like New York City like Alfred was talking about on the special episode we did with them. But no actually there's huge to there's even more demand for this product in suburbs where they're not great food options and logistically it's easier to because you can park and you can move around easier as a career and what was that the case also in China. It was so of course food delivery works great in the tier one dense city. But remember because of this group buying craze may Tuan and then Dion ping had expanded out to hundreds of cities across all of China and similarly you know if you live in Shanghai or Beijing and the like well nowadays you use may Tuan and it's great for food delivery. But even before that you could get anything you wanted any time you wanted with minimal effort if you live in it to your two or to your three city and you're just getting a mobile phone for the first time you were not having that experience. You don't even have e-commerce because Ali Baba doesn't serve you. Pinduo Duo doesn't exist yet. Yep exactly exactly so it's not quite suburbs versus urban versus cities in China it's more tier one versus lower tier cities but the other dynamic the drivers so only you know Dorad had to build up their driver their career staff from scratch both may Tuan and Dion ping but especially may Tuan they just recruited this massive army of foot soldiers to go do door to door group on sales to merchants. It's not that hard to give those folks a cheap Android phone and a scooter and convert them into careers smart and not only that but they had the whole management organization structure built out as well around that. So wait were they employees is there the same sort of like concern over the delineation in China that there is in the US that's a good question I don't know I think it is different but it doesn't seem to be as much of a big deal. The US it was like the biggest issue was well yeah sure mobile's here but they also can't be full time employees because that won't work into our cost structure they have to be only paid for the time that you know the phone tells them okay now in order and in China I do wonder maybe we should do this feels like a good sort of LP topic to dive into worker classification in China understand that better yeah I have no idea that would be fascinating to understand better so it may have twenty fourteen may Tuan goes out Bungshin goes out and raises three hundred million dollars from Alibaba Sequoia his existing investors and general Atlantic new investor and rolls out this food delivery thing from the get go at a hundred cities across China. So let's review investors here real quick so may Tuan has Sequoia China they have Alibaba and they got Alibaba to double down in a big way and then they got general Atlantic yep and Dianping has still at this point fairly little capital because they've been living off the cash flow from the Dianping product and they've been around ten years they've been around ten years from also Sequoia China and Google but Google's tapped out at this point they're not going to invest anymore in China but not Tencent or Alibaba or by do like they're uninvolved to this point to this point so Tencent being the brilliant folks they are and seeing everything going on in the country through their ownership and operation of WeChat which we'll talk about more in a minute. They see this dynamic too and they approach Dianping and they invest an undisclosed amount in Dianping but must have been a very large amount of capital into the company in early 2014 so right around the same time so now we got Tencent backing Dianping and of course Tencent and Alibaba are brutal rivals and by do two but you know poor by do we'll get to them in a minute. So they dump all this money into Dianping but Tao and Dianping you know they know they see they're building up their own food delivery operations but they're not moving as fast as Maituan and Wang Xing they still have the internet company DNA not the you know Wang Xing DNA so at Tencent's urging Dianping goes out and leads a $80 million strategic investment in another company in the space in fact in the OG company in the food delivery space in China a company called Ulamah which I think I'm saying that right it is spelled ELE.ME and this is going to become a very important player in the story but I think it's pronounced Ulamah and what they do is basically create what Maituan is today so they integrate the Ulamah delivery career network into the Dianping experience so you're in the downpig out and you know you're looking at reviews you're choosing where to go to eat and you've got right there integrated food delivery from these restaurants that you can you know see what dishes are great you might experience when you go out to eat you'll see the calls to action in the app to go do Ulamah food delivery next time instead of going to eat it's a pretty powerful combination so wait who let the investment in Ulamah Dianping did so there's still a private company so Dianping raised money from Tencent and they had to obviously like cash flows that generated big profit on their balance sheet and they invested some 80 million of that into Ulamah so now it's unclear how much that was I think it was probably a joint and knowing a little bit about Tencent they operate very collaboratively like a joint hey you know Tencent probably thought this was a good idea talent Dianping we're like yeah this is a good idea this will be great way to learn we can partner you know maybe this leads to an acquisition will also be building this up on our own etc. Okay so we're like totally in Tencent Dianping land here yeah while Alibaba is doubling down on Maytwan so we're setting this up that this is going to be it's like a two on one fight of Dianping and Ulamah together united against Maytwan clever very clever so Ulamah a little bit of brief history on on them they're actually kind of like the real door dash story of China so it was started in a college dorm room by college students in Shanghai in 2008 so like way back and so that's what two two and a half years or so before Maytwan is founded yeah so before the whole group buying craze like it was they were way too early to this space and the story is that they were like big PC gamers in college the founders and they didn't want to leave their dorm rooms to go get food and you know so they started a food delivery business just like Tony back at Stanford they're running around campus delivering food themselves the CEO Mark Zhang he actually goes to work as a delivery courier for restaurants that do it themselves just like Tony went and worked for like FedEx and stuff like there's so many of these China stories that are like I feel like I'm listening to an old version like an old episode that we did I know I know going through them so they bootstrap for a couple years again they're too early to the space they raise a little bit of money from GSR and then from matrix China in early 2013 that was a very precious investment kind of right at the right time and then later in 2013 once it starts becoming clear that hey group buying kind of sucks this online to offline food delivery thing is the next wave will Ma raises a big new round a series C from a new financial investor who has a very well-honed and educated point of view shall we say on the space who do you think that investor is been is this before the 10 cent down paying round or after before before okay not 10 cent not Ali Baba financial investor so that 80 that came in from them was after this this is the round immediately proceeding yep pure financial investor they really see where the space is going let's see they see where the space is going so someone else in food delivery who bet big on I don't know Sequoia China how gangster is that so Sequoia they are in Mayton they are in Deonfeng they got eyes everywhere they are in Ula Neel Shen you dog oh my gosh that's crazy legend I thought that was like oh that's too easy it's going to be like a NASPR's or like a fidelity or like this is just another one of those like the China ecosystem is so different that could never happen in the US could you imagine being an Uber and lift yeah and postmates and doored like right right that's crazy totally crazy so quickly after that then the Deonping slash 10 cent 80 million dollar round happens in Ula Ma and then shortly after that 10 cent is like oh yeah this thing is working we'll back up the truck how about another 350 million dollars from us so this is where things get nuts and at this point Deonping I believe is still running their own food delivery operations in some cities but like the strategic weight is behind Ula Ma at this point we should say to listeners worth speaking in dollars here because that's the best way that David and I can compare apples to apples to everything going on in the US and of course previous episodes too but of course this is all actually happening in R&B yes yes of course so this is where things just get like completely off the rails so the Mayton careers and Ula Ma slash Deonping careers literally start fighting in the streets like there's blood in the streets so there are viral videos that start going around in China the government gets involved they have to like broker piece here like videos of like gangs getting into brawls on the streets and like turf wars that's crazy over restaurants and delivery routes what incentives do they possibly have it's not like they have huge upside in the company like why are you fighting for your tribe I think the culture you know I've mentioned a little bit ago that like the management structure and culture from the group buying days it's a very militaristic culture so if you go on Muton's website now and go on there English language investor relations they have a video an amazing video kind of showing the operations of the company and the super app and everything you can do with it but when they show the career network it's like military style like lines and rows of careers with like a commander out in front giving the orders and crazy it's interesting it's not quite like the independent gig laborers in the US no so that doesn't sound like it so it feels to me like they're employees and they found some way to make that work yeah so throughout for 2014 2015 the two you know camps are sort of neck and neck by the way also we should have said this market is exploding so the food delivery market in China is about four times bigger than the food delivery market in North America and it is growing at a 30% annual kegger the whole market so both of these two camps are kind of neck and neck in 14 15 they each have about 30% market share and then in August 2015 Ulama raises another 630 million dollars Maituan had raised in January of that year another 700 million dollars so like huge huge huge huge amounts capital pouring in yeah and that Ulama raised comes in August of 2015 and that's right before the shoe drops on October 8th 2015 the announcement of the center I mean I remember reading about this when it happened here in the US and thinking like oh wow that's interesting but now knowing all the context behind this Maituan and Tianping announced that they're merging so you've got these two rivals but it's almost like a proxy war with Tianping and Maituan and you say proxy war because it's between 10 Cent Nali Baba well between 10 Cent Nali Baba but it's also between Maituan and on the streets literally on the streets it's between Maituan and Ulama and then in terms of capital it's between 10 Cent Nali Baba with Sequoia also on both sides on Sequoia on all three sides here David I need a diagram I know I know oh my gosh uh war is in China and then Maituan and Tianping are merging so poor Ulama their whole strategic advantage was the product integration with Tianping and they just raised their new investors they just raised $630 million of capital two months later their main strategic partner their product advantage not only goes away goes away to their direct competitor oh brutal wow so without spoiling it for the audience I only know of Ulama because of how they come in to play later in this story and knowing all of this history about them that they were actually a 10 Cent investment that they were actually a Tianping investment and partner is going to be astonishing given where they end up that it's war what's about to happen so supposedly once the Maituan and Tianping merger happens 10 Cent and Sequoia supposedly go to Ulama and say because remember they're investors in Ulama and they're like hey look writings on the wall here I think what makes sense is why don't you sell your assets this new you know combined company clearly they're going to be the winner here like let's all just consolidate you'll get some small piece of this will all be happy and of course 10 Cent and and Sequoia are going to be very happy if this happens right because they're now they're the largest shareholders in what is a company that just has room to run that no longer is just going to be a monopoly at this point competing yeah yeah so to his eternal credit mark the CEO of Ulama's like screw you guys no way am I going to do that and fortunately he has one strategic option left on the table is it the party who just sold their entire stake in Maituan indeed it is it's Alibaba so walk us through this for folks listening one thing that happened at there as a result of this Alibaba backed Maituan and 10 Cent backed Dion ping merging is that in a part of that merger where I think Maituan was slightly the larger shareholder and it was kind of a merger of equals but Maituan won out a little bit Alibaba decides now is the time to get out and not only to this side now is the time to get out they back the like scrappy smaller party who we all thought was kind of screwed yeah this whole thing not necessarily smaller but definitely they were at a strategic mega disadvantage now yeah how does Alibaba decide to sell their stake in the combined Maituan Dion ping so I think this is my interpretation here I think what happened is Alibaba must have been so pissed at this because remember Alibaba's like you know they're like the grossly put like the Amazon you know in time like e-commerce is their thing Talbot T-Mall like that is their home turf and financial services around that whereas 10 Cent you know despite red run games social networking you know while they're bitter rivals they can kind of coexist you know in separate spheres here but now you've got this hyper strategic new market developing where they each have these investments but it's encroaching much more on Alibaba space than it is on 10 Cent space like 10 Cent getting into local commerce food delivery is just purely additive to them that's offense whereas for Alibaba this is defense like because it's not a big leap to think oh I could deliver food while I could deliver like e-commerce stuff to totally it's like if you're an e-commerce player this emerging world of online to offline or as people sort of refer to it the the sort of Amazon of services this local so it's cut it sort of like the Amazon prime that is going to encroach someday on Amazon because if you think about the US like right now we have a difference between Amazon and Amazon prime at some point everything will just be two hours and so you have to imagine that if you're Alibaba you're like whoa whoa this fleet of people delivering stuff super fast in every city in China that is where we need to be at some point yeah and now all of a sudden 10 Cent like we can't hold on we can't stay involved in me to on down paying because 10 Cent are bitter enemy is now right here alongside us as fellow 20% shareholder in this company learning everything and just getting all this upside while we're you know this is like strategically very threatening to us and so why when you try and box 10 Cent out like my sense here is like look Alibaba bet right on the larger surviving company of the two I mean of the two it was Dion ping that merged into mate one and so if I'm Alibaba I'm like get the hell out of here 10 Cent yeah well and what was Sequoia's role in all this totally never know but right there's a lot that's super untold here so totally I completely agree I would love to have been a fly on the wall for those conversations yeah someone I mean the dollar sign got to the place where Alibaba was down to sell their stake yeah that had I mean that just had to be what happened yeah so Alibaba sells their entire stake in mate one Dion ping for nine hundred million dollars and a mark from Ulama turns around and you know enemy of my enemy is now my friend Alibaba invests one and a quarter billion dollars into Ulama for a 25% stake right off the bat and then they don't stop in 2017 they put another billion dollars into Ulama so Baidu had a poor Baidu did have the number three player in the space they had homegrown built up a food delivery business it had like like 15%ish market share 15 20% market share so less than Ulama and mate one Dion ping but they bought it consolidated that into Ulama and then in April 2018 Alibaba buys the rest of the company does a wholesale acquisition of Ulama for nine and a half billion dollars which was until that point and I think may still be the largest dollar size China tech acquisition in history wow crazy all in this sort of same market yeah like we haven't even gotten all the crazy stuff that mate one does these days but this is purely the like food delivery and restaurant recommendations and reviews and you know kind of deadish grew upon corner of the business yeah and at this point Alibaba's pumped more than 10 billion dollars into this business because they bought Ulama outright for nine point something billion outright for nine point five and they had invested a billion five yeah billion five plus the money they had invested into into mate one back in the day plus they had their own internal operations that they were spinning up to yeah it's insane I want to talk for a minute about the attractiveness of the opportunity to be the winner in this space and there's two quotes that I want to bring out from Tao Zheng that he had on the great next billion podcast by GGV capital the first one is if you have three or even two players in a market like this nobody's going to make any money the second one is even more damning which is in this kind of business the only rational way is to merge unless you think you can kill the other guy and he had sort of described that down paying had been talking with mate one about merging for two years you can sort of understand why when you flash forward in a day and look at how freaking profitable the combined company has gotten but at this time no one's making any money and it's just a knife fight of investors pouring money in much like door to ash and uber eats fighting for market share subsidizing customers it is a complete race to the bottom yeah and what's so wild about these betrayals double crosses triple crosses and the end state of alibaba and 10 cent being on separate sides here is like there is never going to be a merger another merger between may toon dianne paying and will a month like it is now a fight to the death unfortunately for alibaba and i think i mean there's a lot of stuff going on around commerce in china and alibaba with pinto doo and jd and everything we've talked about in previous episodes but you know alibaba share price has not done well over the past couple years especially in comparison to 10 cent and others and and may toon and and pinto doo this is a big reason they are losing big time in this space to may toon so 2016 when ulama bought by doo's businesses they then became larger than may toon dianne paying so they had the upper hand 2017 though they lose may toon grows hugely the combined company ulama alibaba lose majority market share and then by 2018 so we're like two years in here may toon now has 60 percent market share ulama's down to 38 percent and then by 2019 may toon's just further pulling ahead they have 67 percent market share will must down to 30 percent so this is may toon dianne paying with that line of unless you think you can kill the other guy which they're doing which they're killing ulama yeah yeah so we've talked about this a little bit already but why are they doing it it's the dianne paying part of the business that's so strategic like consumers have this reason to come to the app and engage with it much more deeply than you would if you're just ordering food delivery so this is where you know the whole super app side of the thing really comes in i mean if you think about it it makes so much sense like the amount of time that i waste flipping back and forth between i look at stuff on door dash i'm like oh that looks good can't really trust the reviews so i flip over to yelp which is my like source of truth for reviews i'm like how many stars they have on yelp you can't really trust those either but totally and they're like i'm like with three and a half stars so zero stars okay skip but like i am bouncing back and forth between the two it makes so much sense for that to be one platform totally it's such a horrible product experience like same deal i'm sure everybody has this like yeah i want to order something but i want to try something new that's not in my usual list of restaurants i have no freaking clue you know i look on door dash i look on yelp i can't figure it out right and door dash new breeds have every incentive to push me to click buy because they participate in the transaction yelps incentives are actually the pure one here because they're just an advertising based business they don't care if i actually dine at that restaurant they're more neutral in this party so i you know you can sort of trust their reviews more that that's why i always feel like i'm looking at these reviews and in you know uber eats in door dash and i'm like i don't know yeah totally and based on you know i've talked to people in the past at both of these companies and i'm like guys i need reviews why don't you give me reviews just give me reviews in the product they're like well it's complicated because you know the restaurants are partners and like we want to like yeah yeah i'm curious how it makes one gets around it or how may one has sort of dealt with that well i think it's because the dian ping assets you know there's millions of reviews in the system and very detailed granular down to the dish level that are just already built in in there they're there it's not like they you know they're creating new ones but it already exists so wang shing and betwan he's not satisfied with just that he's like i'm going to press the advantage here i've got people coming to my app what else can i do with them in the app to sort of increase the cross sell opportunity increase my customer acquisition front doors increase the value i'm customers are getting out of using my app they get into travel this is crazy they get into hotels they get into how they know about the travel industry well because niel shen started a c trip c trip yep exactly which was the dominant and primarily be to be focused but the dominant player in chinese travel yes c trip was the booking dot com of china like they were they were dominant like all travel hotels flights domestically in china you're doing on c trip and still huge it's still huge but they only have 20 percent market share now and may twan has 46 percent market share of travel in china unbelievable which they launched five years ago yeah or less it's as if like an expedia launched four or five years ago and then boom has close with third of the market share yep so travel is huge for them and importantly has a much better margin structure than food delivery so they're getting a huge portion of the contribution margin in the company is coming from this travel business which is getting traffic from the food delivery business and their reviews business you can start to see the flywheel go in here they get into local services so you know this is very adjacent to restaurants and to all the reviews in the platform massages karaoke local events experiences ticketing just book all that right on the app hmm they get into home services you want your dry cleaning done you want your laundry done you want your house clean stuff that you would use like thumbtack for in the us create bring it all in the app it's so fascinating they get into transportation they start competing with dd and then I think they partner with dd later they get out of the right-sharing game directly they buy mo bike so there you can book bikes in the app they get into groceries so like instacarte business you want groceries delivered great you want a shop in person in a grocery store and pick out your items great just get them right there in the grocery store on the me to on app and pay and walk out the store and have somebody a career come and bring them and deliver them to you it's so fascinating because if you would have told me before starting the research on this company the Chinese super app I would have been like oh we chat but we chat you know it's kind of like the app store launcher or like the app launcher like it's your home screen in a way where it's like oh here's a bunch of different apps that integrate you know that that I can get to from my chat experience and agree with my chat this one's like an app that enables you to do anything in the physical world yep well it's funny you say that then because both of these things are true a lot of people use the me to on app that you can download from whatever app store you're using on whatever phone you're on just as many of not more people use the me to on many program on we chat so this is what I'm sending is just so dominant like hey they invest in the best companies on the platform because they see the uses on we chat they did this with pin do I do they've done this with me to on they put their hand on the scale you know either in light touch ways but many programs on we chat is it's a full-fledged app experience right there within we chat so Tencent and the we chat ecosystem is getting all the benefits out of this so like Tencent is a major e-commerce player in China without having to build any of their own e-commerce themselves and they're just like it would be an exaggeration to say they're eating alibaba's lunch at this point but between pin do do and me to on they've got these huge monster players that they're invested in and are being used through their ecosystem on we chat and alibaba's boxed out yeah it's crazy from a capital allocator perspective Tencent is like Berkshire Hathaway like they don't care about owning these companies they don't want to control them as Warren said in his most recent letter to shareholders that they're indifferent to whether they control them or not but you know they they look at great businesses and say we want to own some of that so they're they're like Berkshire in that way they're like Facebook in that they own the most dominant messaging and social network app so they're sort of like they're a fang company their Berkshire but they're also Sequoia and they're like Apple in the App Store they're like Apple in the App Store but they're also like Sequoia like they're one of the best pure sort of financial investors who also then puts their hand on the scale to send you traffic like they're a highly traffic destination with we chat and then they just decide who to open that up to and of course like you said in light touch ways but undeniably people decide to take money from them because that opportunity is available oh and by the way they might do it to your competitor if you don't take their money right as we've seen crazy it's just it's incredible so September 2016 Maytwan hits five million transactions a day that they're doing across all of their verticals on the platform March 2017 so like what's that six months later they hit 10 million transactions a day on the platform by 2018 they have 600 million active users they have over 50% market share of food delivery they're crushing the Loma they do over 10 billion dollars in revenue growing 100% year over year God doubling at that scale unbelievable and that's when they launched their IPO so they go public in September 2018 and this was a big IPO big China IPO at the time but like so many things I was like oh wow like that's impressive but at least I was I didn't understand the extent of all of this me neither so they raise about three billion dollars at a 50 billion dollar market cap when they go public which is up from 30 in their last round that they did yep and then in 2019 they grow another 50% they do 15 billion dollars in revenue they turn profitable they do a billion dollars in operating cash flow their net income positive and then COVID hits and and this is interesting I think unlike Dory Dash where COVID was an unalloyed good for Dory Dash it's a little more complicated for me to one ultimately and it goes good but remember their hotel business and their travel business is also a big part of the platform so yep that got crushed as you might imagine and the highest margin part of the platform and the highest margin yeah it accounts for a smaller part of their revenue but a big part of their profits big big part of the profits so Q1 2020 their total revenue is down 12% across the company and hotel and travel is like crushed and Q1 of 2020 in China is like Q2 of 2020 the US right it was all it all hidden in December January yep by Q2 of 2020 though revenue is back up total revenue up 9% year-over-year for the company and people are starting to wake up you know around the world at this point they're like oh wow wait COVID is good for tech companies and good for these next generation commerce and delivery platforms so the stock starts to go on a tear in May of 2020 the stock goes from a 65 billion dollar market cap at the beginning of the month so you know up modestly from the IPO at the end of 2018 but you know flat-ish to hit 100 billion market cap by the end of May 2020 by October it hits 200 billion dollars market cap by February of this year just a couple weeks ago of 2021 it's 300 billion dollar market cap becomes the third largest market cap tech company in China behind Tencent and Alibaba and it's traded down a little bit since then it's now at a 270 billion dollar market cap as we record this but wow what a story absolutely I mean there is a stock market story going on here there is a pandemic story going on here there is an execution machine story going on here and I think the biggest one that I want to talk about in a minute is a business model and profitability story going on here yep well David I want to sit with some of these numbers from today and and like unpack them a little bit understand the company's position and how much it has changed in the last year because if we look at this let's talk about the largest tech companies in China right now there's Tencent number one the 850 billion dollar market cap so worth understanding for those out there China doesn't have a trillion dollar tech company though that is a strictly US phenomenon right now I bet it'll change soon but that is what it is today Alibaba hasn't seen the sort of reward that Tencent has it's sitting there around 675 billion Maytwan where we just talked about between 270 and 300 billion it's a pretty steep drop sort of obviously between Alibaba and Maytwan so they're not yet in the league of that sort of company but they're right there neck and neck with Pinduo duo it's a 200 billion dollar company which we've covered bite dance the parent company of Tik Tok and what's the other do you do you mean well Dillion and Tote Al and Tote Al with a 180 billion dollars so the list sort of turns quickly into these 100 billion to 200 billion actually lots of private companies you know bite dance is private you know who would be in here but is not publicly traded as Huawei yeah right that we've covered before right of course so you've got you know Pinduo duo by dance then Quaishao JD by do Xiaomi down from there so Maytwan is in sort of rare error here and a lot of that of course is because of the stock run up from the last year but the growth story in terms of profitability for this company is absolutely insane so as David mentioned they've been profitable since Q2 I believe it was of 2019 but then in the last year they grew their profits their sort of operating profit line from 225 million dollars a quarter to a billion dollars a quarter so like they just kind of figured out oh there's where the operating leverages in our business it's when we tack on a bunch of other businesses that we can amortize the cost of acquiring these customers over all these different revenue streams and we can get them to I think that now it's 27 transactions per user per year across 475 million transacting users so you just have this situation where like this is bananas totally like your Airbnb you get half a transaction a year your door dash I can't remember what their number of transactions is per year but whatever this is the super app it's door dash plus its fan dango plus its I don't think ride healing is included in here because like you said they're they're more of a partner in that now but like they just own this big basket of transactions that they've already acquired you for so that's 30 transactions a year across a user an active user base that is roughly the size of I'm guessing like the population of all of North America I don't know what the population of Mexico is right because the US is what 360 or something 3060 million yeah I thought it was like 330 or 340 but somewhere in than Canada is at another 30 million to that I don't know what the population makes but like what's more than the whole population of the US and Canada yep it's wild it's a huge number of users transacting what I think six and a half million merchants 27 times per year then when we go into segments the largest segment of that growth was food delivery but obviously they had lots of growth in hotel and travel and would have had even more sands pandemic in the last year which I do think will rebound in a big way you know over the next couple years new initiatives has actually been a huge revenue driver for them has yet to be a big source of profitability but that's things like actually setting up grocery stores like they're they're really going hard they're doing things like local flower delivery local medicine delivery and having these hubs of actual grocery stores yeah when you hear Tony and Dor das talk about all the things Dor das can do in the future just look on over at me to on and like take whatever they're doing today and cut it by three quarters and that's like the vision for Dor dasht that's such a good way of putting it and Dor dasch is already priced as if this is going to happen for them like mate one here is trading at 14x revenue and Dor dasht trading somewhere in that same neighborhood around 15 16x and so investors have sort of decided that this phenomena that happened when you win food delivery and you can tackle these other businesses on to is just like going to go well for Dor dasht which is totally fascinating I want to get into the product aspects of this but one of the big things for me and the story is like the primacy of the djun ping product and what it all unlocked and the fact that it is a 18-year-old product right so like Dor dasht maybe able to recreate this or whatnot but like they don't have the benefit of an existing front door type product compounding mo type product and they've got business model you know orthogonalism here where their restaurant partners don't really want the level of granularity of reviews that you would need right you know the only way to arrive at the endpoint that mate one has arrived at is by inheriting 15 plus years of these existing relationships and data with restaurants yeah in this particular way one other what two other things I want to put in context here for me to on and it's current valuation so on a scale of the business let's just take a revenue as opposed to GMV or profits but which we should say revenue is only growing like 30% per year not the monster three to four hundred percent that we're seeing in profits yep but on a size on a scale versus door dash we don't yet have full-year numbers for 2024 mate one because they haven't reported Q4 yet but let's just take 2019 full year 2019 numbers as we said they did about 15 billion dollars in USD of net revenue in 2019 and net revenue being that is all their take of all the food delivery plus all they're just like revenue from all their other businesses selling maybe tickets and book and travel and all that stuff yep door dash in 2020 so with the benefit of covid which accelerated their business I forget exactly three x three x revenue from 2019 yeah they three x revenue in in 2020 even with that three x in 2020 a year later for door dash they did two point nine billion dollars in net revenue so we're talking about a business that is least 5x the scale already of door dash likely six to seven likely six to seven x the scale now let's turn to the profitability side of of the equation here so like we said they generated a billion dollars in 2019 again sticking to 2019 in operating cash flow zoom which obviously is a completely different business and much higher margin you know incredible gross margins incredible business on every dimension they just reported the other day 2020 numbers keep for 2020 in full year 2020 numbers and they did 1.5 billion dollars of operating cash flow in 2020 so like already may twan is doing more operating cash flow likely than zoom that's a really good because I've never thought to compare those that's a really good obviously completely different businesses but zoom in my mind is like the canonical pure software margin incredible cash flow monster yeah and just the scale of me twan like I think of zoom in door dash on opposite ends of the spectrum and here's me twan that's doing six seven x the scale of revenue of door dash and more cash flow down there's then zoom yeah there's so many dimensions of business model awesomeness that is accruing to them I mean one is like they've squashed their competitors they've pricing power the other that we talked about is that just they're layering on all these other sources of revenue on top of cack they've already paid or at least for new customers that they're acquiring you know they're able to spread that across so many different transaction types that they'll do another one that we haven't talked about is that like amazon they're now making a lot of money on online marketing services which is pure profit revenue you have users buying stuff on your property as soon as you introduce the ability to advertise to them you get to keep 100% of those dollars that the merchants are paying you like it's unbelievable gross margin business is good as it gets and so 16% of revenue is now the ads business that they've layered on top which is a business that you only get to earn the right to have when you have a scale business where people are coming to your destination and buying things on it so there's like yet that other level of just leaning into operating leverage there well then there's there's even another level beyond that of they're also selling B2B SaaS to merchants on every time on so true so you know you're a restaurant right like all the services that square provides you except for the core payments infrastructure but like you know managing your inventory doing your booking system like all all that stuff your payroll your HR well and they're too unhappy to sell that to you not to mention now they have your financial data they're happy to be your lender also they're pulling the sort of square capital game here where they're given loans to merchants totally which as we've also covered on on many an episode is an excellent excellent business to be in so they have figured out how to do food delivery and not lose money and that is a massive understatement so all these things point you in a direction of oh my god this company is a monster like how could you be short like what's the concern here maybe travel doesn't come back and that's their highest margin revenue so you know if that doesn't come back that's a big deal yeah seems unlikely it's not going to come back though and I think it already is coming back and it's clear that like they're taking share in that space yeah so I think you know look this company is a juggernaut like there's just no two ways about it I do think to I once a bear cases but things like to be watchful of that I could see one is they obviously have a fantastic relationship with Tencent Tencent owns 20% of the company I think everybody's very happy with that but as much of a juggernaut as Meituan is Tencent is even more of a juggernaut as we keep harping on on this episode and frankly on this entire show if that relationship were to sour at all because Tencent is the ultimate top level it is a source of and control of traffic in the Chinese ecosystem right now now we do a bite dances is on the rise there threat to Tencent and whatnot but for the time being Tencent is dominant any fracture in that relationship would certainly be detrimental to Meituan so for the 50% of their customers who use their mini program do they actually own the customers or does Tencent really own the customers and they're just letting Meituan use them like well I guess the true test of this would be if Tencent got mad and punted the mini program you know made it hard to find or kicked it off completely how many of those people would actually go and download Meituan's app directly right right I mean I think a lot yeah there's nobody else out there that has the scale of different service lines and merchants and reviews most importantly the review database and asset as Meituan so so I think it's very defensible but it's a dependency of the business I think the other this is more forward-looking than risks the existing business but we didn't talk as much about what's in the new initiatives line for Meituan and there are a lot of things but the biggest and the most important strategically right now is community group buying which for those of you who aren't familiar with it despite sharing two words with group buying and the group on space is quite a different phenomenon and a uniquely Chinese phenomenon right now but it's hugely strategic well and just to explain it super quickly it's group buying an e-commerce not group buying at your favorite local boutique like it is you inviting your friends in a fun way to shop with you for something that's going to be shipped to you and the cost structure is totally different to operate that type of business than a group on business yeah and there's that so wait what you're describing is pin duo do as business which is a competitive front as well oh I thought that's what you're all learning alluding to so no so it's actually well that's but that's part of the whole ecosystem but very specifically around groceries is where the war is the big front is right now so pin duo do as as we talked about in our episode and does exactly what you just described then community group buying though is kind of like a grocery store meets multi-level marketing and so the idea is that a member of a community becomes a selling agent for the goods producers in this case mostly groceries so like you're a farmer you're making you know producing groceries so the like a agent from various communities brings people into then as a group buy from you so you're disintermediating the whole grocery store value chain and this is a major front that may to on is invested in hugely in adding to the app and so you can as a group leader start a group build relationships with producers get clients make money run a business here and then as customers you get much better produce at a much better price and a lot of this traffic is flowing through we chat to so the two leading players right now in this space are me to on and pin duo do which is also broadening into this business so you weren't really thinking about like ooh mate one's not going to be successful in taking PDD's core business you're thinking is for the next frontier they're chasing that they're both chasing and will have overlap they may not win that yeah I think one of the themes that I see from this episode is like the more stuff you control particularly in China tech the better your company is and the better your economics get and the more your flywheel spins and the more customers you get yeah and so part of the thesis is like mate one because of their incredible strength already can keep winning every front but if they don't win every front you know they could end up like alibaba where all of a sudden they're losing on a bunch of fronts right oh man there's a big game of king the hill going on constantly and you get always be defending your turf and be trying to find the next one totally now I can that's the future like I don't think that's a bear case for mate one right now or been do I do right man it's so funny okay so we have danced around the idea of power but we haven't named any yet so why don't we formalize that and get into our power section here so of the seven powers the Hamilton Helmer seven powers of counter positioning scale economies switching costs network economies process power branding or cornered resource the first one that like really really really hits me here are scale economies where mate one has been able to become very profitable very quickly because of scale economies and I think the way to think about it is sort of the Netflix comparison where because Netflix has the most viewers they can pay the most for content because they can amortize it across the most viewers it's like hey there's already four hundred and seventy five million people using mate one and can we put something else in front of them yeah that they could you know potentially also transact with and the fixed cost to stand up whatever that business are are the cheapest for me to on relative to anybody who standing it up and doesn't have all those people they could spread out the fixed cost of standing up that business to that's sort of how I think about it yeah they can go invest you know I don't know they probably have announced how much they're investing in community group buying but they can go invest billions of dollars into it and it's worth it right because they have six hundred million users that they're going to stick there in front of yeah or if like let's say the business is cheap to stand up but expensive to acquire customers like it's not for me to on right right because they already have all the customers and they just cross sell across yep totally so that's the big one that hit me like a ton of bricks when I was like why is made one so freaking profitable so the other one that I was thinking about it I'm not maybe we can talk through this live I don't know what the right taxonomy is here whether this is a cornered resource or switching costs but the power of the review database but the reviews themselves and then all of the data around it for recommendations is enormous here and I think we showed in the story like just such a key part of what's become defensible in this space and I already thought that Yelp blew it on so many fronts in the US but like this is just such a stark contrast of like how valuable Yelp could have been and totally how not valuable they are so I think this is switching costs because once you're on the as a consumer once you're on the Dion ping review platform it's I don't think it's necessarily a cornered resource in that like you could go use another review platform and somebody else could stand up a review platform and have all the listings that Dion ping has but as a consumer you wouldn't get the benefit of all the 18 years worth of review data that's already in there right huh and you're the more simplistic angle on that would be all it is a cornered resource and it's made towards cornered resource and that one else has all those reviews yeah so maybe it's that too I was thinking about it like in a slack context of like yeah I could switch from slack to some other messaging platform for my company but then I lose all the message history that I have yep either way whatever you want to call it I think that's a big power yeah for sure what's interesting to me here is they don't really have network economies like a lot of the times when we do stuff on this show the answer is network economies it's like it's interesting for a 10 cent backed company it is not a social business it's just not I mean maybe they will be in this group buying thing but it's that's not where their power comes from now like if your friends switches to something else you don't care when you care I suppose if like your favorite restaurant is not on there anymore right right I think there's some lightweight social features of like you can plan trips together you can book restaurants together you can do orders at restaurants together that kind of stuff but I do think there's a two-sided network effect of the merchants and which you alluded to the merchants and the consumers that as a consumer you want to have all the merchants on there and as a merchant you want to have all the consumers but that's not that defensible like there are other platforms like Guilama that have all the merchants and could have all the consumers too yep so anyway I think we're speaking the same language here that lots of scale economies maybe a cornered resource and if not a cornered resource then definitely switching costs yeah is there counter positioning here to versus who well I'm thinking about C trip and I don't know enough the detail about how they won the travel market from C trip but I would imagine that they were probably able to subsidize the consumer side in order to gain share in a way that C trip couldn't because Maituan has as we've said all these other businesses that they're also getting contribution dollars from their customer base maybe I think the way that I sort of think about counter positioning is why is it that C trip would be doing something harmful to their own business by chasing this and I'm not sure they would it's just that it would be really expensive for them to go and acquire all these customers so it's more like scale economies yeah yeah I think you're right as always we feel they're open for interpretation but we need Hamilton to tell us that's okay all right what would have happened otherwise the way we want to do this section is what would have happened if they didn't merge and the answer is only one of them would have been left standing the question just is how do you get there they both could have raised one more round of capital and then merged or one of them could have raised one more round of capital and then they would have squashed the other one and I think it just becomes this thing of like if they both kept raising huge amounts of capital eventually they both just go out of business because those businesses were not profitable and arguably there's some point where you've taken on so much capital where your business can't get valuable enough to justify a combination but I think it was just kind of like a high stakes game of chicken where you know they had been talking for years and when was the right time to merge and you know how much dilution can we spare before like how many new shareholders do we have to bring on before we actually do get to merge and say okay you own this much I own this much and we get profitable and tell John talks about this on the evolving for the next billion nine and six podcasts that yeah they've been having conversations for years maybe Olama knew about it maybe they didn't but yeah this was going to happen at some point yep yep playbook yeah you said you have a bunch of them right I do have a bunch of them so one of them is the thing we haven't talked about yet which is the joy of being in a growing market so e-commerce in 2017 was a 20% saturation industry that had saturated you know 20% of all commerce real world services was only 5% so while allay baba is definitely in this growing you know segment where more commerce is shifting to online that it was way more opportunity in the retail services industry and that leads to the sort of excitement that investors and entrepreneurs had around the offline to online or as they refer to it with the O to O business which ended up actually becoming the key to sort of ascending to become one of the top three Chinese tech companies you had you know an e-commerce company which was sort of online to offline but a far less complex version of a previous generation by do which is a digital only company research and Tencent which is gaming and social a digital only company and so your way of getting to capture enough margin dollars to become as big and successful as a business as one of those was this offline to online movement and they were sort of the ones that emerged successful in that and it was in this crazy fast growing plenty of headroom ahead of it thing where you had only 5% penetration in 2017 it's also a good thing like to highlight in the west I don't think we think as much about the fact that like what this story proves which is that like everything can come online I think if you were to ask people in China and certainly if you were to ask one thing whether there are any category of dollar spend in China that he could not bring on the platform someday he would say absolutely not it can all be on the platform but I mean literally they're going to rural farmers and they're selling online directly to customers facilitated by me to on you know they're karaoke any any activity you want to do any store you want to visit you pay with me to on in a store you go shop you want to go shop in a local grocery store in the equivalent of a safe way cool that's cool like do it with the me to on app while you're there in the store and David I know this is like a personal investment thesis of yours which is don't you know bet on the incumbents to effectively go through digital transformation the long run you just bet on tech companies to figure out how to successfully move the needs served by those incumbents online yeah but I think it's even from that perspective for me this is eye opening and only possible because China leapfrogged it a very real sense with bringing their population online but just like all these things that you would never even think could be a digital transaction can become a digital transaction that's a great point speaking of things that we don't do as much in the west I think this thing that may one did in amortizing their customer acquisition costs over a crap ton of businesses that they put in front of the customer like American companies don't do this as much it's like taking our large customer base and offering completely different things to them I mean Amazon's probably the best example by bundling more and more things into prime to sort of expose you like I never would have thought like oh this company that sells books or let's even say it's further in their journey that like this company that has the everything stories also going to be one of the top two players in movies like in streaming movies like I wouldn't a bet on that but Amazon is a really good job of understanding your customer and we're going to put more and more stuff in front of you I don't know that other companies do that as much like people kind of stick to their lane yeah this was this was my other big playbook theme I really wanted to highlight for me which is thinking about exactly what you said through the lens of how China and Maytwan and seeing what everything that's going on there Amazon's the best at this in the west and they're getting like a sea on a global scale like Uber really wanted to do it and sold this vision of we're gonna you get there's Uber everything we're gonna eventually be able to move all this stuff around and you know it doesn't matter if you're taking a ride or something's taking a ride to you you're gonna get it through Uber and like it just didn't happen and I think what's also really interesting for me is that the product experience the customer experience is so much better when it all works together and just like the dichotomy of like how the food ecosystem works on Maytwan and China versus the super crappy that I now see way version it works in the US of like reviews are disconnected from the food which is disconnected from the dishes which is disconnected from how I order it for delivery which is disconnected from how I order it in the restaurant which is disconnected from how I book the restaurant like that's a crappy customer experience right I look it up on Yelp and then I book it on Rezzy or talk or open table and then the billing is completely separated from all those things but if I ordered it at home then actually I should go to door to ash even if it's coming from the same restaurant it's like it's a nightmare total nightmare it's a great point yeah that the vertical integration not only creates a business that can capture more profits but also a better consumer experience yeah it's like the ultimate irony given that and Wang Xing and everything in China started as just copying the US and now it's like wow the US is so far behind yes that's a huge point I want to drive home on this episode is like the world and we've talked about this on other episodes too but China is not the place copying all the American companies at this point there's so many things including payments infrastructure and like FinTech generally social buying like the US culturally has not adopted social buying the way that that it has in China and everything that may one is doing it's hard to even put a category on it because it's it's offline to online it is the services economy and we don't have a direct comp we have 20 companies that roll up to that sort of same thing and I think that there is a huge point to take home which is China is leading in innovation on mobile and on the internet in a way that in many categories the US will be years before they come to totally all right what else you got all right so another big one that we didn't really talk about which was a secular trend going on in China that enabled all this to happen was the growth of the middle class you know the fact that tier two and tier three cities became an addressable population that could spend on things like smartphones and then things that you know were apps on smartphones wouldn't have been possible a decade two decades before this came online 100% so I think that's a big realization and then the continued diffusion of wealth out from you know I feel like a couple years ago when all this was getting started you know online offline in May 20 and being it was second and third tier cities now it's fourth tier cities it's the countryside it's you know that's what community group buying is about that's a really good point I hadn't followed the sort of continued dispersion of wealth throughout the you know the lower middle class as much I would be remiss if I didn't underscore again 10 cents unique strategy of both being a financial investor and a thumb on the scale partner you know it's a little you got to make the deal because otherwise someone else is going to it's just a it's a wild amount of leverage that they have in any deal and then they sort of come through like that's just a deep deep pile of capital available to you to go chase an opportunity and push someone else out of business and they'll give you traffic on top of the opportunity and like most of what you're spending your capital on is traffic anyway so 10 cents actually can afford to invest less in your company and invest more in the form of traffic but they don't they do both it's huge amounts of capital and huge amounts of traffic so it's a he's an unbelievable business and it's something that is not done for one reason or another in the US probably for antitrust concerns yeah probably two quick things on that one was we didn't talk about the valuations of the last rounds that Deon Paine and Métwan raised before they merged but it exactly reflects what you're saying so Métwan raised 700 million at a 7 billion dollar valuation and Deon Paine raised like three four hundred at a four billion dollar valuation because 10 cents like we bring the traffic right you'll sell us 10% of your company yeah you're not going to need a lot of it you have stripe raising you know these pitances at a hundred billion dollar valuation yep yep yep and then the other thing is I think it was on our Roblox DPO preview analysis with Mario was it you or Mario who said I think it was Mario that was said 10 cent is like the most interesting man in the world because Roblox is entering China with a JV with 10 cent it's like I don't always enter China but when I do I enter with 10 cent you have to I mean it's crazy and 10 cent owns 50% of that or 49% of that JV it's like for us bringing you into the country in the privilege of of that happening we're going to take half of your revenue bananas it's crazy so I brought up antitrust there and that's a thing that we didn't talk about on this episode at all what does antitrust look like in China because if they're able to squeeze Olima out and really be the only player and really have pricing power over consumers and over restaurants and over all these like that's something that in the US would get deeply scrutinized and especially in the climate that we're in now so how does that work in China that's a good question honestly that's probably the biggest risk from like an investment thesis standpoint of anything in China which is I don't know but I think it basically the way it works is whatever the communist party wants to do right or allow or not allow I have no idea but yeah if the business model and free market dynamics are such that you just have as much room to run as you on unpricing and profitability as you want like in our system in the US we would frown upon that in another system you could imagine someone saying okay well we just have to have a cut yeah and I don't really know how it works I don't know whether it's a cut or more like a that's cool you keep doing that but if stuff starts happening that we don't like politically kind of like Wang Xing's Twitter clone back in the day you know the plug gets pulled on you hmm and we're seeing that risk with Alibaba now with Jack Ma and the anti-PO plug getting pulled so that risk is real yeah it's a great point okay a couple more here so we are seeing food as the go-to-market strategy for a company that is ultimately getting into all consumer services you know we thought about it in this way of like getting free profit dollars because you've already paid off your costs and expanding in all these other businesses but what we're actually seeing here is like land and expand but in consumer it's like this classic B2B concept where you have a go-to-market wedge you get embedded and then you start selling more and more stuff like this does exist in the US but it's what enterprise companies do sales force oh my gosh you bet you bet so there's there's definitely an element there of this land and expand leads to you know more stickiness more retention in the very same way that you do in in the enterprise and David to your point on switching costs that's where the real switching costs come from when you're buying everything from one provider it's hard to rip that provider out yeah totally all right so that as all I've got for playbook do you have any more nope all right well value creation and value capture so longtime listeners will know there's two elements to this one how does the value that they're capturing in the world compared to the value they create they do a good job of that like Google or they do a bad job like Wikipedia or of course not a business foundation but yeah group on created a lot of value for consumers not for merchants that's a great point unfortunately and then secondarily you know the more altruistic one value creation versus value destruction so on this first one they're doing a damn good job capturing value I think if they were in a knife fight still you'd be like guys like you can't seem to turn a profit in this business I'm worried about the long term that's no longer a concern so I think kind of a no brainer here on creating a ton of value and capturing their fair share of it and probably will capture even more in the future value creation versus value destruction you know in in the US we feel a lot of people feel very strongly that these food delivery companies are not great if you own a restaurant you know that it's not great to participate but you also kind of have to participate because they're aggregating you know that door dash new breeds are capturing more and more of the consumers and the careers too you know there've been strikes union organizing for sure everyone's getting squeezed so what dynamics carry over to may one like is it as gnarly or gnarly or for restaurants using may one as it is for door dash because you could imagine it's even worse because they also have the platform that says your restaurants a one star restaurant and then they're trying to extract some big percentage of borders oh by the way they have all the customers yeah I don't know I didn't find anything one way or the other in my research and in part it's because like you know we're all reading newspapers all the time in the US there's going to be many many people who feel fine writing a take down piece of some US based tech companies like we're not really reading the Chinese press that's critical of these businesses well I don't know this is like way out there at the limb speculation for me so listeners who know much more about China or live in China feel free to correct me in the slacker email us at acquired FM at but I think the government in China one of the things that would make them upset and come after a monopoly platform would be like I think it's in the government's best interest in China for restaurants and local businesses to be successful and if me to on or putting them out of business I think the CCP would want to go have a chat with Wang Xing that's a great point yes there's a check in a balance in that way well listeners if you know more about this we'd be very very curious yeah totally all right so grading is there any scenario where it was not an a plus for these two companies to merge and for let's define this real quick if you're a shareholder of me to one or a shareholder of the Yangping in 2016 is there any way that you could have had a better return on your dollar than these companies combining and achieving not only the profit but the market cap that they have today yes 100% if your name is Ali Baba this was an F minus oh yeah because if you think about it their cost basis was they invested at rounds from the series valuation of what a billion dollars through 30 billion dollars I'm sure way less than a billion the series B was 50 million dollars in May to on so you know I don't know maybe the valuation was 300 something okay so they got obviously a very nice markup by these companies merging and at a combined value of I guess what would the combined value be I don't know at the IPO at least it was 54 56 billion was the combined value 30 billion at the merger I think I want to say was more like 15 okay so you know nice return the downside actually for them well two downsides one their first blunder was getting out of something that would then you know go stack another 300 billion dollars of market cap on top of that or just shy of 300 the second mistake was investing in the competitor yeah the biggest biggest overall mistake was allowing this to happen I mean maybe there was nothing they could have done to avoid it but now they have an existential threat competitor to Ali Baba that exists out there with Tencent as the primary shareholder that's just been destroying them in this market and potentially and many more to come yeah and they're doubly exposed I mean they're exposing their core business but they made a huge bet on the rival that didn't pay off yep we should be clear to Olamas will exist it's not dead the story is not over it's a big business you know most standards yeah they're probably a lot of listeners in China right now we're screaming at us like Olamas not dead which is totally true but me to one has 67 percent market share so then the question becomes if you were Tencent was there any better outcome than these companies merging Tencent is just so gangster they're like Sequoia China but with traffic yeah and that's exactly what they're like Sequoia China is only slightly less gangster I think Tencent and Sequoia did better in this transaction than the company itself huh here's a question has Sequoia done better on Maytwan or DoorDash that's a good question so I pulled up at the IPO so Sequoia passed on seed but they invested in series A and everything afterwards in DoorDash so according to the Wall Street Journal Sequoia invested around 400 million into Betuan Dianping to all of them over the years and at IPO their shares were worth about $5 billion at IPO so that's a $4.9 billion so $4.5 billion return at IPO but then the company is up 6x since IPO well just think about they own 10 percent of a 270 billion dollar company right if they held so it's a 27 20 I don't know 26 25 billion dollar absolute return so how much did Sequoia return on DoorDash ballpark so pre IPO Sequoia owned a little over 18% of DoorDash I forget what the delusion was in the IPO but let's assume 10% not seems reasonable seems reasonable okay so that would take them down to what I don't know let's make it easy 15% that they own of which probably a little more than that of DoorDash so now 15% of where they're trading today at a market cap of 50ish billion so 7 billion so yeah they're doing a lot better on Betuan it's no competition way better on Betuan fascinating it was closer on DoorDash when at the end of IPO day but no competition now you know what this also makes me think of for a long time this rule and venture capital that I remember it a drone I remember afterwards like always you ownership ownership ownership ownership ownership ownership is paramount I wonder if that's different now I certainly have a different perspective like 18% ownership in DoorDash well yeah I mean that's great but like shoot I'd take 5% ownership in Betuan over that yeah just I mean it gets back to the thing that packy flagged for all of us a few weeks ago which was what is the likelihood that you could become a you know mega mega outlier multi hundred billion dollar company and I don't know David I still think it's important from an early stage investment perspective because there are still very few Maytons yeah like if the argument was there's more Maytons being created than ever and there are you know a dozen two dozen three dozen you know nearly a dollar or soon to be trillion dollar companies that be one thing to me it's at least the way I sort of rationalized it is sure all the valuations got bigger but it's still incredibly rare to be one of those whatever we want to call this class of company I think that's totally true on the other hand I do think there's some trickle down effect here where like depending on your fund size I think there are a lot more one to 10 billion dollar companies out there than people imagined a few years ago very true order of magnitude if not two more yep so if you're a fund size of call it less than 500 million dollars ownership maybe isn't quite as important as you thought it was. That's an interesting idea well I think that about wraps it for grading we have some good carve-outs today yeah that we should hit here before we head home do you want to start yeah I can start so my carve-out is a great short book that I just read I broke my rule about not reading any recent books but this one felt like not too much of a commitment and just a really interesting timely topic called extraterrestrial by Avi Loeb have you heard about this pen? No it's great so Avi is the chair of the Harvard Astronomy Department and the book is about do you remember Umeh Muamua the extraterrestrial the visitor from the other solar system a few years ago that came through our solar system this was all over the news and it was picked up by telescopes it was this very odd object that entered our solar system it's very rare for objects outside our solar system to enter our solar system had all these like really interesting properties scientists weren't sure what was and there was all this bus like oh could it be like an alien spaceship and then over the years you know the scientific consensus has basically said like oh it was a really flat shaped inner solar system asteroid. Comed I guess it would be anyway Avi has written this book and he's a widely respected you know incredible scientists he's the chair of the astronomy department at Harvard and he's like I don't know what this was the properties of this thing are such that to decide it is a natural phenomenon you have to bend over so backwards on so many dimensions that like if you outcomes razor this thing obviously the answer that comes out is this was extraterrestrial technology and he's basically like look can I prove that I don't have a photograph of it but like he goes through all the evidence oh fat and he's really going against the scientific community here and it's popular it's a pop book this isn't like a scientific article but he makes this great point he's like you know Pascal's wager which is does got exist and Pascal's famous wager is like well if you think about the consequences of one or the other you're probably better off believing God exists because you'll be happier probably during life and then if God does exist you're better off low cost for you to do so yeah exactly and so Dr. Loeb proposes what he calls the muah muah wager of question is was this alien technology or not and similar to Pascal's wager it's low cost to humanity to believe it was but the upside is enormous versus the other way around if you believe it wasn't there's no upside it's to status quo and the potential cost is enormous and so he's like well if we believe and he's and he actually really genuinely believes it was extraterrestrial technology well what is that open up for humanity it opens up our minds to think about well if other civilizations out there can traverse light ears hmm well how could we do that that's really cool it's really cool I should read just to get my head out of just to read something different you know I feel like consume a lot of the same media or they can media accuse me of the same head space yeah it's really and it's like a hundred pages that's awesome all right adding it to the list my carve out is my favorite sub stack and it is called Ludwig's learnings and it's a guy named John Ludwig he's a principal at Founders Fund and we actually cited his work on the spec episode the spec LP episode that we did this like his writing spans so many different topics but every single one I read I'm like oh my god yeah like wow that's huh that is really well-reasoned logical and the outcome is a little scary and makes me sort of question things and the first one was I maybe even talked about it on the show around internet tailwinds they're slowing down mobile tailwinds slowing down and sort of moving into a new type of businesses that will be created in the future that are just less favorable business models then existed over the last 20 years and all these interesting decelerating trends which for all the conventional tech wisdom around everything continues to accelerate I found was fascinating you know around like can we possibly have any more time in front of screens no so can there be bigger advertising businesses like here's the only ways you could make them bigger there's a lot of things like that in the piece that I found was really interesting the second most recent one that I thought was great was around timeless versus time full advice and it was around here's a few examples of sort of five pieces of advice that are generally widely held to be true but if you just go to a different part of history it would be terrible advice so why do we hold them to be timeless and maybe you should do the opposite now and they're very like there things that we all take to be like very sage pieces of wisdom I read that that was a really good piece that was really good one of them was home ownership right it's a good idea to own a home and he was like if you look at the tax advantages and you look at the massive increase in demand for homes of course the prices were going up because more people than ever could buy homes wanted to buy homes is that the case now there's all these reasons why you should actually examine that you know new tax incentives all sorts of stuff and then the most recent one was around this go go time that we're in right now that he calls finance as culture which is of course everything that we're seeing with stocks will they go up and everybody you know pop culture discusses finance and has various elements of finance that drifted in and out of it finance has become sports finance has become entertainment finance has become conversations with friends and examines what are the reasons that this could either you know pop or continue and sort of which camp do you want to believe I just find all of his writing so good and and John if you're listening thanks for really writing really thought provoking work totally 100% agree I should we do I at one bonus carve out that relates to both of our carve outs I think we got to say today yeah given the founders fund connection is starship and holy smokes holy smokes flew came back landed and and waited like a whole minute or two before it blew up all the I mean that's enough time for people to be playing when it lands on Mars totally if it blows up only a minute afterwards than were no I it's an unbelievable accomplishment and actually I was thinking when I watch that video of it landing earlier today and they have some beautiful footage of it I was wondering related to your first carve out of like well did we just pass some test like in Star Trek there's this thing called the prime directive where you can't interfere with a species who hasn't discovered warp technology yet and when it came back and landed I was like do we just hit some threshold is there like somebody gonna pop out and you know we get to meet aliens now and obviously you know it's not war technology it's just a bigger rocket but so exciting for what it means for the future space travel on every dimension so cool just think about how many starlink satellites they can launch off of a star ship I don't know if that's part of the plan or not but like you they can launch six to seven times as many and is totally part of the plan yeah incredible I think it's 60 in a Falcon 9 deployment versus a 400 in the star ship deployment that'd be so cool if like two years from now we're all on Starlink Internet yeah I mean I literally had someone in my house today coming and fixing the internet so if there was a more foolproof system than the my decibel readings were off getting from the pole to the inside of my house which then got split so it increased the decibel readings I learned a lot I didn't know decibels were involved with coax cables and sending signal but it is and it was a pain and it would be great if I don't know maybe Starlink has sort of the same way that it ends up getting internet to your router but yes a better system than the ISPs we all deal with would be wonderful that would be wonderful all right listeners that's it for today yeah I think you should join the slack I think you should come join us we want to talk to you about this episode we want you to talk to other smart people I'm I'm defraining from my scripts here but David and I just did some research and we realized that over 50% of the messages in the acquired slack are DMs and most of them are not to us because like we just don't get that that many of them so yeah it's kind of cool like we're doing more with the slack and we're looking at slack the company actually gives you some cool analytics and graphs and if you look at the daily active usage and weekly active user graphs for the acquired slack it's like at a small level but like they're on an exponential curve like it's super cool for sure for sure and it's mesh you know it's not hub and spoke so like everyone is talking to each other sometimes with us in channels but also sometimes you know finding co-founders and finding investors and finding customers and making hires it's just really cool so I freaking love the community that we've developed here and you should join us in the slack if you want to be a deeper part of what we're doing join the LP program we'll be on zoom calls with you once a month and LPs we've got one of those coming up so we'll see you soon and yeah then you get to hear Jake tell us about SAS in 2021 which was a privilege to talk to about such a fun guy so all right if you like this episode and you're still listening which would be shocking to me if you made it this far into us just telling you all the different ways that you can be a part of what we're doing well it's like the end of Ferris Bueller you know and he's like you're still here what are you doing go home we're literally I'm looking at the time count where we're we'll cut some of this that we're recording but we're at three hours and nine minutes like go home all right I'm cutting us off listeners thank you so much share this episode we'll see you next time see you next time