The Meituan Bear Case (with Lillian Li)
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And I don't think I'm totally pronouncing that right. Can I have a pronunciation lesson there? It's Le Le Ma. Le Le Ma. This would be like the intro clip to our thing. Le Le Ma. And then Alibaba goes and invests in Le Le Ma. Fantastic. Excellent. Thank you. Thank you.

Hello, Acquired LPs, and welcome to another episode of the Limited Partner Program. We are here today with Lillian Li, an excellent commentator, commenter, I'm not sure what the right word is, columnist and thinker on all things China tech who has influenced David and my research as we've done several of the different China episodes.

We were catching up with her after our May 1 episode and realized, boy, is there more to talk about here. And super excited to have Lillian on with us. So David, who is Lillian? What are we doing here today?

Well, Lillian is the author of the awesome Chinese characteristics newsletter is one of my favorite sub stacks that I subscribe to. And everybody should go check it out and subscribe to it as well. It truly is awesome. And Lillian, like so many of our friends, you've been doing this for what, like six months total? Like, it is shocking to me the learning curve that you have come up

and so many other great folks out there like Mario and Peggy. It took us years to be doing anything worth doing. You rock. Either that or we're slow. Thank you so much. I still just tell other people when I meet them that I write an internet newsletter and it confuses everyone, but definitely do not have to deal with the label of how should I present myself as a commentator or an analyst or a recovering VC.

When we were catching up earlier, you said in Chinese, there's different terms for influencers, right? You don't have to use the like, god awful term influencer. There's a respectable title. Oh, yeah, for sure. And if I can make a plug for that, so there's at least...

three different words for it. So you can sort of start off with the very respectable word of 'tsumeiti', which means 'self media', which is typically what I just refer to myself as. I run a media organization that is composed of myself. People totally get that.

The second word, if you want to be a bit more classy, is you can call yourself a KOL, which means key opinion leader, which is definitely a nice way of saying you're a thought leader, or at least you have a lot of fans, without sounding too up yourself. The third one is a wanghong, which means you're very hot on the internet, I guess, which is the most close equivalent would be influencers.

They also have different vibes, you know, some AT self media is much more agnostic with respect to different platforms. If you're a Van Horn, that definitely means you're more visual and KOL means you probably, you know, you're definitely like an important person on a specific platform. Most probably writing. There's like nuances and shades of

of the creator terminology that I think should really be adopted. As we were talking about, you know, it's kind of awkward to be like, hey, I'm a creator and people like what, what does a creator actually mean? Exactly. What does that mean? Yeah. Well, Lillian, before we dive in here, catch us up a little bit on your background. You mentioned Recovering VC. You've got this wonderful British accent, but I believe we're talking to you from China. So give us the whirlwind story here.

Yeah, let me give you my pitch. So I was born in China and I moved with my family to the UK when I was eight and have sort of been there for the past few decades apart from a few stints where I made it out to Boston to get snowed on and made it back to China for a gap year.

And my background was relatively stereotypical in some sense of started off as a management consultant. And then for the last five year plus has been working as a VC across Europe, first with Salesforce Ventures and most recently with 8Rows Ventures.

covering kind of series a to growth stage investment typically focus on sas but also relative generalist because um as you guys probably know europe is still a smaller market than us so sometimes you can't be that choosy with uh what you want to specialize in changing fast though the ui path uh s1 it's true it's true yeah so like you know the uh

general narrative for Europe is up and coming. And I do believe that you definitely see a lot of it very interesting. You know, you have Addy and you have UiPath, you have Algolia, that's probably going to come up as well at some point in the future. So, you know, very interesting startups is coming more focused on the B2B side.

So did that for five years plus. And I guess 2020 is the best and worst year to make major life decisions, which is what I did. And I decided after many years of reading about Chinese tech and then visiting China and still not really understanding what is happening, but feeling like it's very exciting. And if possible, I should be part of it. I bit the bullet and moved back last year.

landed here in August and very much started writing the newsletter when I was in my quarantine of two weeks in a hotel, like partly out of boredom, partly out of the fact that I think maybe similar to sort of everyone's who's doing a newsletter and hopefully I'm not slacking off,

mario or packy here but i feel like no one starts writing a newsletter being like oh yeah this will be the way i claim fame and fortune like this is this is it totally well packy wanted to start a like in-person real estate social club in new york that was that was the original it was not boring club um

The idea was it was going to be a club with a space. And then the pandemic hit and he was like, well, better take this online. I think Mario had always planned to be a writer, but he wanted to be a novelist, right? Exactly. Yeah. Mario was, you know, especially his like literary flourishes. And, you know, he's great. We've collaborated on an amp piece way back. But yeah, you can tell there is this kind of like...

aspiring, great novel inside of Mariner that's going to come out at some point. None of us would have been like, yeah, you know, I'm going to write a weekly newsletter. And that is how I crack this. And definitely not me, because I guess when I landed, I was like, okay, I have almost no followers on Twitter. I'm sitting in a hotel room. I'm basically going to amuse myself and write about something I don't really know about, but I think I should get

better on, aka this Chinese Gen Z YouTube platform in heavy quotation marks because obviously it's not quite that called Bilibili, which I think you guys should also do an episode on one of these days, by the way. It's like completely fascinating.

and wrote the piece. And then it sort of slowly got traction. And I didn't really pay too much attention to, you know, what is essentially like a passion project. But in the last six months, as we've seen with a whole host of things, there's a lot more interest about Chinese tech. And so, you know, I've been relatively fortunate to sort of essentially have ended up in the right place at the right time, and sort of write about it. And I think taking this back

to what we're talking about with Meituan has been a really interesting time, right? Because I've very much been on the ground since the entire community group buying phenomenon has really taken off here. And you can just feel it in the air, like every other news article, I think for the period of September all the way to November was really about

community group buying and these WeChat groups with heavy discounts. And was it a good thing or a bad thing? So it's quite interesting, the perspective I bring, which is I still think of myself as a very kind of like wide-eyed, starry novice in many sense, because while I know tech, I don't have this deep understanding of Chinese tech that you really acquire after living here for many, many years and being in the ecosystem.

But I think what I do have is sort of that from the Western tech perspective. So I'm able to sort of say, hey, let me take all these frameworks and understanding I know about Western tech and sort of try to apply that to Chinese tech, see the limitations of that, and then, you know, take the other side and sort of say, okay, so...

why is this? Why do they have super apps? That seems kind of confusing. What is it about this particular setup that has its own internal logic in this context? And then sort of try to, I think, be a bridge essentially between the two tech cultures, because I do think they're increasingly parallel in many respects and not so much as I think the narrative has been like one is super ahead and one is super behind in everything. I think it's just a reconfiguration of perhaps different basic starting points that

Before we get here into Meituan specifically, I do want to sort of bring up a conversation that we had had in our catch-up call, which was, okay, China has super apps. The U.S. and the whole Western world does not. And this manifests...

in every way, but one of the ways is user interface. In the West, you would never dream of seeing an app that has every icon under the sun jammed in there. You know, it has to be do one thing, do it well, keep it clean. It's just completely the opposite. And so I'm curious your perspective as someone that for the last year and at various other times in your life has actually used, you know, apps in China and designed for the Chinese population. And obviously you've used a

And I don't know whether to ask this question of why are Chinese app UIs crazy, which is my very ethnocentric view, or is it why has the U.S. failed to bring robust functionality across a whole bunch of different services into its apps?

I've thought a lot about this question because I think this is almost like a question that smacks you in the face as soon as you get into the two ecosystems. And I think there's a lot of different factors going on, right? So taking a step back, when we think about what the China tech ecosystem has been, it's really taken off in the last...

maybe 10 years and I think it's really taken off when mobile hit. So people talk about China being mobile native, but the mobile native bit has to really emphasize the lack of existing players pre-mobile, right? So everything started off in the mobile, which meant it was a crazy greenfield when you started. And when you start with a greenfield and you don't have to spend too much time really thinking about your particular niche,

I think that sets a different way of thinking about product. And I think then that filters onto this idea, which I have consistently observed is that they think Western products,

will typically think about themselves of what is our core utility? What is our core function? You know, what is the attribute that we want users to associate ourselves with when we use it? AKA if I'm, you know, let's pick an example. I'm YouTube. I want to be the video platform that everyone goes to, to watch something that's entertaining. I don't really want to deviate away from that. But I think for Chinese apps, when they started given the Greenfield opportunity,

given the fact that it's harder to get consistent traffic to their platforms, which we'll talk about perhaps later or here in terms of getting public and private traffic.

given the fact that it was always going to be harder for them to internationalize. And that's kind of brought out in the fact that we don't really see any big international Chinese tech firm bar TikTok slash Douyin slash ByteDance, which is the exception that proves the rules. So it kind of meant that as they were growing, they realized, okay, we have all these greenfield opportunities, but they're probably going to be limited in China. And with mobile native first,

and we need to find ways to grow users and grow users in a cheap way. And I think you essentially definitely see that with Meituan, like they need to keep their CAC low because especially when you're in a very competitive situation, again, you know, a very distinctive attributes

of the Chinese ecosystem, as you were talking about, at the height of the Groupon wars, there were thousands of competitors, right? Can you imagine acquiring users when you have thousands of other competitors and trying to bid on specific adverts? That would be crazy. So all of them have gotten into this mentality, for better or for worse, from their genesis of we need to acquire users and retain users cheaply.

And so bring that back to the YouTube example. We have YouTube who thinks about themselves in terms of function, and they probably can because they don't have to sort of have all of these other considerations. They can go international, they can go into other product families, they can get traffic cheaply. But for a player like Billy Billy, they will have to sort of

consider, hey, you know, our core mission and every single Chinese app's core mission is to own the user, to make sure that you do not leave the platform. Because if you leave the platform, you probably forget about that platform. Right. You'll never come back. Precisely. And so their mission is just to anything you want. You want finance? Great. We will give you a loan to buy this. You want takeout? We will give you discounts on takeout. We'll try to entertain you with minigames.

So anything that they can introduce, they will introduce to sort of really lengthen the time you spent in apps and to sort of reduce the cackle of crying new users, just in case you churn. You see this manifestation once the big players do it, you see this manifestation everywhere else because then it's almost just keeping up with the Joneses. If my competitors are doing this, then I have no choice but to do this as a preventative measure that my users will go over to theirs. And I think that's,

To your point of, from the perspective of user, it is very annoying when I'm asked to consider whether I want finance insurance products from my food delivery apps, from my payment apps, you know, every single apps that I'm using for the 10th time that day. To maybe paraphrase or like pare it back to make sure I'm sort of hearing you right. It is, if you think about like seven powers concept of scale economies, a lot of the US companies are judicious in,

taking advantage of the scale economies of, hey, I already have this user. Can I sell them something else? Because it sort of has to fit within their mission and vision. And they have that luxury because A, there's not as much fierce competition. And B, the path that most of these companies go is to address the global market. Whereas the Chinese companies are saying, it's fierce, crazy competition. There's going to be another billion dollar company started in my space in the next six months because that's how crazy fast the cycles are. Right.

and China's big enough that I'm going to punt on needing to ever sort of internationalize and keep just this one function, but do it for the global market. My own market is big enough that if I just sell everything to the group of people that I am selling one thing to, that can be huge enough. Yeah, I think that's precisely it. And you definitely see this sentiment where entrepreneurs are kind of like, well, I don't really need to internationalize. China's such a huge market. Its population is four times the size of the U.S.,

And also just to take a crazy figure, if you step back, if you put the population of the US, Europe, Australia, Latin America, that still would not be bigger than the population of China. So it's just crazy big. That's insane. Oh my gosh. We definitely don't think about that every day.

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This is great. The main thing we wanted to cover with you today, the genesis of this episode was we did this Meituan episode.

Ben and I were just in awe of this company and this product and how it's meteoric growth, everything you can do in the app. And we were extremely bullish on the company. We were struggling to come up with bear cases. We mentioned this idea a little bit, though, of like, hey...

By the nature of what Meituan is, it needs to keep growing. It needs to keep adding new products, new verticals. We talked a little bit about community group buying as being sort of the next battlefront on this never-ending growth journey. But we didn't have a lot of context about what's going on and why that's a difficult fight right now for Meituan. Let's dive into that because you have a little bit of a different perspective on Meituan's prospects right now.

I still think Me2One is a fascinating and fantastic company, but I think my outlook on them is definitely less rosy than your outlook. That could still be quite rosy. It could still be quite rosy. And I think...

to set the context right of the few themes that you've already touched on in the Meituan episode, which I think are more attributes of the Chinese ecosystem is firstly, it gets competitive very quickly and it gets very competitive very quickly. You have a lot of players spring up and something else, which I think was mentioned was the unpredictability of the environment and subject to very quick changes, be it in terms of the market, but also from government regulations, right?

And I think those two have been consistent factors that we need to consider. What that has meant for community group buying for Meituan in 2020 is that, firstly, it has definitely exploded. I think 2020 is the year when everyone was locked inside the house and decided that online grocery is

finally a viable option because there was no other choice. We even did it here in San Francisco. We were never online grocery people and now we could never go back. Exactly. I can only imagine what it's like there. The great accelerator of COVID has really made a lot of companies see that the adoption cycle is much faster than it used to be.

And what has happened with, I think, the internet giants in general is that, as we're seeing, there's been...

a slight slowdown in growth, I would say, in the last three years because all the natural saturation green space that we talked about initially, the installation base of the mobile has come to an end. And you're seeing that across the board in terms of e-commerce, in terms of delivery, in terms of offline services as well. So there is just a general mass anxiety for folks and every one of them is seeing communication

group buying as the new area of growth because community group buying is targeting a segment that they typically do not access, which is people living in quote unquote the lower tier cities. And maybe this is a generalization

just like a tangential aside to sort of say what are lower tier cities and upper tier cities, right? So in China, as we talked about, it's very big. And how people kind of classify China is kind of between kind of the mega metropolises, which is Beijing, Shanghai, Guangzhou, Shenzhen. So those are the four first tier cities. And then you have a handful of second tier cities that range in population around probably 10 million.

And then every cool 10 million. Exactly. Just, just like 10 minutes. It's just like that. That's not even like a mega big city here. No, it's just like New York. Yeah. Two X, the Seattle Metro. Exactly. It's just one of those. We've got plenty of those lying around. It's fine. Yeah.

And what are some examples of tier two cities that any names people might recognize? I think the impressive thing is would they recognize the name? So like Xi'an is a tier two city, Qingdao is a tier two city, Tianjiang is a tier two city, but I really doubt most Western listeners would have heard of these names, right? They're seemingly quote unquote under the radar, but very, very big.

The general traits for tier one and tier two cities is that the inhabitants are affluent. These are probably on par with the inhabitants of London or New York, kind of very metropolitan buying habits. And that's where typically where a lot of, if you think about Alibaba and Meituan have thrived because they're also catering to this need for convenience, tech savvy crowd.

And what you've also seen is none of them are really paying much too much attention to quote unquote the lower tier cities. And the lower tier cities here is the tier three, tier four, tier five cities, but also townships that

have much lower income per capita that don't have major industries. But that probably accounts for 50% plus percent of the population in China still. So it's not just that these places are less dense. It's also that the standard of living, the GDP is much lower. Exactly.

Precisely. And they also have very different buying habits. So for these population, because the income per capita is much lower, they are very price sensitive. And traditionally they are much later tech adopters, partly because the logistics built up to those regions are not as good and sophisticated. And therefore the buying experience is not as frictionless. And the range of produce that they would also have access to is also much less.

As a quick way to tie it to previous companies that we've talked about, where does the clientele of each of these companies kind of live in terms of tiered cities between JD, Alibaba, Pinduoduo, and Meituan?

Let's go for each of them. JD very much tier one because JD's key differentiator is that they sell really good electronics and high-end electronics is typically consumed by tier one cities. And they've also built out very strong infrastructure networks. So I would be able to get something from JD within two hours here in Shanghai, which is pretty crazy. In terms of...

Alibaba traditionally as well, very much tier one, tier two cities. Their stronghold is millennial women from the age of 20 to 35 who typically buy a lot of makeup and apparel and their preferences also relatively urban as well.

For Pinduoduo, I think that is the only one so far that has risen as a result of lower tier city demand. Because again, this focus on groceries, which is more of a key needs good rather than it would like to have a consumption good, as well as the lower price range.

points that they're offered. And even the way they have put together the app with the emphasis on social commerce, it actually mirrors the stronger social ties that you would typically see in a lower tier cities where it's much more common to go and visit your neighbors on a regular basis. Whereas, you know, I think in a city it's pretty common that you probably wouldn't speak to your neighbors ever. For Meituan, it has also been actually an interesting combination of both. Meituan started off

in the lower tier cities, but then very quickly moved up to the first tier cities. And I say lower tier, maybe tier three, kind of the less glamorous spots, but definitely not kind of tier five and tier four cities where... Still millions of people. Exactly, exactly. Still kind of, you have a town center, you have existing infrastructure of good roads and such. I'd read about, and I knew community group buying and groceries are a big battlefront in China, but I hadn't quite...

realized why until you were just saying it sounds like it's because for the 50% of the population that's in let's call it tier four and below cities and townships

groceries are really like, they're buying so much more of that versus like electronics or discretionary goods or like, it's the one good that you can actually access a huge portion of the population with, right? Exactly. Because as you said, David, it's a service that is very high volume based. It really encourages a sustained buying habit and therefore allows these tech players to, you know, train the user,

to really think about them and accessing them on a regular basis, and then to work towards upselling them and then owning the user through then offering them a whole host of additional services once they have that initial habit. And that's why community and group buying is seen as so crucial for a whole host of big consumer tech giants right now.

And Lillian, two follow-up questions. One, can you just give us the quick definition of community group buying? Because I messed this up on the May 21 episode. I thought David was referring to Pinduoduo's sort of social e-commerce model, and it's a completely different thing. And then secondly, is the growth of the middle class in China over the last 15 years illustrative of what's going to happen next to the sort of lower class or tier four and below cities in China over the next 15 years? Why are people so obsessed over it?

Community group buying is like decentralized Costco. That means a group of people come together and they buy something in bulk. And typically the way that happens is that say we're in a village, right? And someone says,

I'm going to become a group buying leader. Very, very informal. What they do is they create a WeChat group. They pull in a bunch of members, perhaps, you know, 50 to 100 members. And each day they will send out a bunch of deals to the WeChat group, kind of a

picking the best that's available from a collection of Meituan, Didi, a few of their startup, like NiceTuan, these startup players as well. Oh, so they're pulling in from multiple platforms into these WeChat groups. Oh, wow. Yes. And

The thing is then that people in the WeChat groups then decide what they want to buy. And you only buy the thing once you reach a certain threshold. So say today we have a particular sale for carrots on Didi's platform. We need at least 30 people to buy that. Once we reach that threshold, then as the group leader, I can then go on the platform and

Actually, no, everyone has made these subsequent orders, but the platform then aggregates it and then will send that order to me, usually the next day by 4 p.m. at a specified dropout point. And me as the group leader, I will go to that dropout point and then unpack the bulk carrots into the subsequent 30 orders and then either allow that for pickup from the local residents or hand deliver it to them.

Wow, there's real labor involved. Yes, but I get a commission as part of that. And especially because when we think about these typical residents are in tier four, tier five, their income is not very high to begin with. So this is a very good side hustle for a lot of them. Some of them are stay-at-home mothers, others own actually a small shop like a convenience store that makes it easy drop off points anyway, and would be a focal point for the community. So

It's a way for all of these kind of folks to access additional revenue. And, you know, the business model is really interesting because you've essentially got rid of the CAC for acquiring users and you've got rid of like part of the servicing, right? From the tech platform side. So suddenly the unit economics of delivering grocery makes way more sense.

Because I don't have to sort of really essentially deal with too much of these traditional factors that was making the whole operation of delivering groceries really. All the stuff that Instacart does here in the US or Good Eggs here in California, like that's a lot of work and cost. You know, even if you're using the Instacart model and going to existing grocery stores, like that's still, you know, 10, 15, $20 worth of labor per order. Precisely.

So that is typically how community group buying works. Obviously, that's kind of also evolved. I'm giving you a very, very simplistic 1.0 version. Some of them have standalone apps that you can order directly on the apps. So you can do that without a team leader. And some of them are moving more real-time infrastructure. So you can access that as well. So it's definitely grown by leaps and bounds since six months ago when this first became a very big trend.

And the second question was whether the lower tier city folks will also essentially go through consumption upgrading. And I think that is the big bet, right, that everyone is making. And that is definitely supported by

the overall government policies of trying to stimulate, quote unquote, what is going to be internal circulation, where goods are made in China and then bought by China. So essentially, that means they really want to encourage China to switch to a consumption-led economy. And that also means more money is going into all parts of China, including the lower tier cities, and hopefully make these lower tier city residents much more wealthy than they are now. You

You kind of see a lot of noise in here, but I guess back to, you know, kind of the topic of our show, which is the Meituan bear case, is that that might not happen given that this requires essentially a giant ship to turn around. China has consistently grown as an export-led country, has made moves to be a consumption-led country for the past few

few years at least. And it's a slow process. And so in the intermediate time, we are still betting on external demand to drive parts of the Chinese economy and also for people to really drastically change their consumption habits, which is sometimes asking a lot from a population that's never really engaged in this kind of consumption behavior before.

you know, to your question, is this going to happen? I think lots of tech players and the government are hoping this would happen, but it's actually a big question mark of whether this would actually happen.

It's interesting because you're right. It's both of those things are tightly coupled. Like the tech players are, or Meituan, for an example, needs it to happen because that's the only opportunity for their future growth. And maybe I'm wrong on that, but I'll sort of throw out that that is the sort of first and best way for them to grow. And as you said, the government has a massive incentive to make that the case since they're trying to switch to a consumption-led economy. Yeah, precisely. And I do think that is the case now.

For Meituan and a lot of other players as well, I think that's also why you see Didi, who is the Uber of China. Why is that company getting into grocery buying? It's a bit of a question until you realize that's where they must think the next frontier of growth is going to come from. Because by assumption, they've kind of exhausted other frontiers of growth.

Especially in China, keeping the user within your ecosystem is so important.

Then, yeah, that starts to make a lot of sense why all of these disparate companies are battling it out for these users, right? It's not just about groceries right now. It's about groceries right now, but it's not just about groceries. It's like, well, if they're going to be doing ride sharing in the future, if they're not buying groceries on Didi, then they're not going to be doing ride sharing on Didi. Precisely. Yeah. So I think, you know, community group buying really is a battle for the future of Chinese consumers, right?

And that's why you see so many big players plowing so much capital and, you know, really kind of stating this is their future. Like when you look at what Wang Xing is saying for Meituan's future, he's like, yeah, we're going all in on growth. We're going to plow more money into this. We're going to build our existing infrastructure. It seems a bit strange until you sort of think about, for them, this is their cack for the next maybe three or five years. And then...

Without getting this, they're not going to have any additional customers to upsell future deliveries, future plane tickets, future hotels, too. Is Meituan well-positioned to win this war? How do you think that's going to go?

Yeah, it's a good question. I think the current two favorite front runners are Pinduoduo and Meituan. And I think each of them have a lot of strength. And definitely by looking at the data and coverage of different cities, those two are doing very well. And Meituan definitely is coming out ahead in a lot of regions. It's hard to say. And again, this is another piece I sort of want to bring into the conversation, which is that

the government actually isn't too fond of community group buying because they view this as

Another way in which tech is exerting is monopolistic influences and disrupting small holders, small offline holders who sell vegetables. And they've kind of made firstly clear moves to sort of indicate their lack of support in December by saying, actually, we think technology firms should focus more on innovation and think more about creating less

the next generation of semiconductors and AI software rather than focus on taking bread and butter from, you know, grocery sellers. And then they followed up on that. And I'm being a bit imprecise. I shouldn't sort of talk about the Chinese government as if it was a monolith. So I would say the state administration of market regulations

than in earlier this year levied fines on five group commuting buying companies after two months of investigation because they feel that these platforms have been engaging in predatory pricing by pricing their produce below market prices as a way to induce customers to buy from them rather than existing offline shops around their vicinity. Which is probably funny because all these tech companies, they're probably like,

looking at each other cross-eyed like, well, why wouldn't you do that? That's what we do in every market we enter, right? Exactly, exactly.

Is this a shift for the Chinese government? In markets past, it doesn't seem like the government has stepped in to try and prevent tech companies from growing quickly and displacing, you know, the small entrepreneurs who were doing that in a less efficient way the way before. Are they like learning from who we don't like the way it went before? Or what's your view on that?

Typically, what we've seen is government regulators, they will let companies innovate and then they will follow up swiftly with regulations if they feel like this is going to have negative spillover effects for the overall economy. And I think a

An example that might have not gotten too much coverage is kind of the P2P lending trend in China that happened a few years back, which was then, you know, very quickly sort of revealed to be a semi Ponzi scheme. And then the government came in very quickly and then basically outlawed that entire sector. So when they feel like,

this is not value accruative for a lot of society and maybe perhaps the vulnerable parts of society. They do make relatively swift movements. And I think especially to your point of they've seen this

This subsidy war and then plowing of resources and then the death of multiple competitors within consumer tech a few times before. And I think not just the government, but also the consumers and everyone is very wary about the playbook. They've seen what happened last time. Meituan and Didi did that for food delivery or...

taxi servers and they sort of know exactly how this goes and the playbook is you come into the existing market to your point david is this the playbook you subsidize everything so it's very cheap people move on to your platform the existing market kind of dies and then once people on your platform then you can sort of exert a crazy influence over the consumers because they have no other options and so yeah i mean i think of the on the meituan episode as we were telling the story of

when the Mitoan and Dianping merger happened and Sukhoi and Tansen were trying to convince Ulema to sell for a

a pittance into the combined company. They're like, yeah, we're going to have a monopoly. It's going to be great. That's the plan. Exactly. Exactly. The regulators as well as Chinese folks are like, actually, that's great for you, but it's not great for us. Our delivery costs are getting pricier. Our taxi costs are probably the same as they were before Didi came along. Where's the consumer benefits?

And I think especially in this case, right, typically the argument is made that if you are selling fruit and vegetables, you know, the profile of these fruit and vegetable sellers in most wet markets and just general stores around the country is that they typically tend to be older folks who have a lower economic, social economic background. These are folks that can sort of, once they lose their livelihood, can easily go and retrain to be a data scientist. And there's also a lot of the...

So I think there is also the aspect of like, this is actually a very potentially vulnerable part of society that don't have much available sources of income available to them. And so if we were to really disrupt their livelihood, why?

What are the knock-on effects that could bring? Because, you know, agriculture is still a significant part of the Chinese economy. I think that is very much in the back of the regulator and the government's mind when they think about this is, you know, how is this going to systemically? Yeah. Well, this is super interesting.

Because like the narrative, you know, at least for the last month or six weeks or so in at least what I see, the Western investor market who are interested in and or invested in Chinese tech stocks, the narrative has been.

The CCP now doesn't like tech and is bringing stronger antitrust cases and regulation and everybody should be worried and they're coming for tech. But as you're pointing out, like it's really much more nuanced than that, right? Like there's this battleground and the government is concerned about the implications of what's happening there. But that's quite different from like, you know, she woke up one day and said. Yeah, I completely agree. It's kind of disheartening to see how simplistic technology

the narratives around what's been happening has been. And yeah, it gets very distilled down to a narrative of personalities where I think it's in China, it's always a narrative of systems and also the competing fractions within that system.

I was just at a talk this weekend about the halt of Ant Financials. And even within that, and just looking at the data that was coming out, you know, China in 2020 pre-IPO halt, they had released at least 15 different pieces of white paper legislation around reformation of the financing segment. And so again,

there's always like a build up to any kind of big regulatory changes. We can definitely argue about, you know, what the tipping point is. And then definitely there has been a change in sentiment. But I think for so many of these things, the trend was already around. This is nothing surprising. I think no one really on the ground here in China, they were like, okay, yeah. So they're putting a bit more behind what they're saying this time, but this is not really surprising if you've been, you know,

Listening and chatting to everyone around, I think everyone there is this sense of feeling that the tech companies have really a lot of power and really a lot of monopolistic power that impacts people on a day-to-day basis. So it is a much bigger conversation here.

Funny how that's aligning with a lot of the sentiment in the U.S. in the same way that it's aligning in China around the same time. But the ecosystems are so terribly, terribly different. Like, Tencent, to me, is a completely different animal than any FANG company in the U.S. I mean, it's closest to Facebook, but it also...

is a pure play investor in many ways who can put their hand on the scale, as David and I have said many times. And so I'm curious, I know we're deviating a little bit away from Meituan a little bit, but maybe not because Meituan ultimately is part of a proxy battle for Tencent anyway. How do you think Tencent ends up faring with this sort of new lens toward a skepticism for the tactics that made Tencent as successful as it's been to date?

So I have always classified the very big tech players, firstly, as institutions in themselves, but also kind of in a symbiotic dynamic with the government. And I think for Tencent, they will, in my mind, come out with parts of their business that

clipped a bit more. So there's already talks around Tencent Pay and whether, you know, that needs to be more closely financially regulated, similar to Ant Financial and Ant Group's offering.

There's more discontent around their gaming practices. But ultimately, Tencent also serves certain purposes for the Chinese government, especially in the realm of censorship and perhaps propaganda. And so, yes, I think the next phase of Tencent's growth is

will be relatively more confined, but I think it's not going to be gutted anytime soon. So I feel like maybe the upside for me has been tapered for Tencent, knowing kind of where the direction of travel is. And also Tencent themselves knowing that, they're very kind of smart folks, will also be much more cautious when they are making plans for the future to not come across as if they're, you know,

a monopoly throwing their weight around, even though they already are. Again, very similar to the US in seeing some of the fang companies get less acquisitive, especially with big combinatorial type acquisitions in the last year or two.

This may be wishful thinking on my part as just a Tencent shareholder, but no doubt that that is playing into my thinking biases in some way. But with how you've described about what the government's concerns are specifically about tech companies and what they want from tech companies, which is...

innovation, you know, semi-conductors. Obviously, Tencent doesn't make semiconductors, but it does seem to me like they're sort of better positioned to pursue growth in those areas than, say, for instance, Alibaba is. Alibaba is like a logistics e-commerce player, whereas Tencent is a software maker. That means you think that Tencent is better positioned to create the type of innovation that the government would find favorable?

That's my hypothesis. This is where I kind of shit on Tencent because they haven't really come up with any revolutionary product anytime soon. So I think as you've even said in your acquired podcast, Tencent's two comparative advantage, one is traffic and the other one is money. And they've just kind of taken that approach to the max. During COVID, they have launched WeChat Work.

But that actually is far behind the market share for Ding Talk, which is the Alibaba equivalent. And in terms of cloud, they don't have as much market share. They probably have 10% market share relative to AliCloud, which is converging on 40% market share of the Chinese market. So yes, I would say...

When you look at it, you can sort of say Tencent is a software market. But for this next phase of growth, which China terms to be focused on cloud computing, edge computing, industrial internet, semiconductors, agriculture, seed, a lot of these kind of choke point technologies as they talk about it, Tencent has only been a big player through investment purposes, but not directly. Whereas actually, I think Alibaba has fared well in actually making them.

Let's pop up a level here. So you had a tweet storm, and then obviously we've had a conversation where you sort of pointed out a few ways in which the Meituan future was not as rosy as we had painted. We've talked about one here or two here, one of which is community group buying being the next frontier, but it's a very competitive area for them where they have very legitimate competition in Pinduoduo, which is ironically also a Tencent-backed company and part of the Tencent sort of family of startups.

And then the second one here that the government actually doesn't love tech owning and creating community group buying because it displaces these existing, you know, smaller merchants. What are some other reasons why we may have overstated the certainty of their rosy future? I think additional competition. So recently Douyin, the Chinese TikTok, aka ByteDance, have started launching their new group buy discount feature in their app. So

Again, Meituan kind of initial space of location-based recommendation and discounting is also kind of getting disrupted from other new up-and-coming players. And doesn't that seem to compete more with Pinduoduo? Or maybe I don't understand what the new ByteDance functionality is. Oh, yeah, sorry. No, it's literally, it shows up and be like, hey, do you want to go to this nearby restaurant? Here's a discount coupon. So it's very much trying to replace like DMPing. Yes.

Huh? Yeah. So while you're on Douyin, it shows up in your feed. Wow. Yes. Could you imagine that happening on TikTok in the US? Or maybe that's a bad example on Instagram. Yeah.

I think it's not too far away, to be honest, because I think they've done a really good job of landing you with the advertisement and then trying to upsell you on the commission. So what happens is it wouldn't be, you know, too ham-fisted. Maybe you would start to see a video of like someone being like, hey, don't you want to know like the best hot pot place in Shanghai? And then you're like, oh yeah, I do kind of want to know the best hot pot place.

place in Shanghai. And then it would actually be a short video of someone, you know, showing around the shops and then showing you the dishes. And then at the end, they're like, Hey, by the way, here's,

a potential link to a coupon. And then also, you know, if I'm scrolling through my location features, I can also see advertisement for these coupons as well. So it's a kind of a content-led mode, right? That we're already seeing, you know, Dianping doing. Like when I opened the Dianping homepage, it's actually a lot of videos and then pictures rather than the typical UX of just lists of restaurants that Yelp typically does.

So, you know, they already know the future is kind of more visual and, you know, in some ways Douyin is at the forefront of it. So to sort of answer the initial question is very much,

Meituan has made its positioning in the location-based restaurant space around convenience. Hey, you are in this area already and we are going to suggest you good things around here that you can go and try out and eat. But for Douyin, they are pushing a new way to think about it. They're sort of saying, hey, we're going to make you go to this specific restaurant because it's so hot.

actually that's kind of also taking a different path to get to the same goal. And I think that actually could be quite relevant in this day and age when, you know, it's actually something I'm seeing in the Chinese consumers is that they actually do want to travel and go to quote unquote a Wang Hong, this kind of like hot on the internet places and take pictures and share that and sort of say, hey, you know, look at me, I'm so hip right now at these like really cool places. So yeah,

yeah, I think that could be, if not a legitimate challenge to Meituan, definitely something that they have to sort of be on the lookout for, right? Because Douyin is, you know, such a massive influence on people's attention right now that is getting competitive of WeChat. It's unbelievable the hours and hours and hours they can capture of your life. And

And it's running the same playbook with scale economies of saying, look, we've already acquired this user. We know how to keep their captive attention. You know, they're going to get hungry while they're flipping through TikTok or through Douyin. So like, let's be the person that gets to make some money off of figuring out where they go. Precisely. Precisely. So I see that as a very interesting challenge. And again, it's very early days because they've just launched this feature. But, you know, Douyin and ByteDance has never won to...

back down from a fight. They're very aggressive, I think, once they do see an interesting product market fit. Yeah, that could evolve very quickly, very soon.

So I think that's one point. And they'll continue to be capitalized incredibly well. ByteDance is the most valuable private company in the world. It's worth two SpaceX's to put that in perspective. I think it will not be hard to imagine investors or the public markets continuing to pile in tens of billions of dollars into that company. So if they've got their eyes on a capital intensive fight, you know, they're a formidable competitor.

Yeah, very, very much so. And also because they haven't had any kind of big hits because ByteDance churns out a lot of different types of apps. You know, they're very desperate to show some really good numbers ahead of a potential IPO.

So again, that also puts more pressure there. And I think the other case in terms of just a bare case for Meituan is right now there has been a lot more discontent around the salaries and treatment of their delivery workers.

And again, that has sort of been coming across in the Chinese media where there's been unpaid wages or people having to essentially break traffic laws because what happens when you are a delivery rider for these platforms is that you are allocated a certain time period to make the delivery, which the algorithm has calculated that you need to sort of make this route within 30 minutes. If you don't do that, your pay is docked or your...

you potentially lose the job after too many infringement. So everyone is very much pressured to

go crazy to make these very unrealistic times often. So you would see often, you know, delivery drivers going up single direction rows for the other side. They'll be driving on pavements. This has become, you know, a big societal worry because, you know, they are under pressure to make that 20 minute delivery, which really should have been made for 30 minutes. But because the platforms want to delight their end customer, they're saying, okay, we're going to make this 20,

make this delivery in 20. They're forcing that down to the delivery folks. These delivery folks are engaging in very semi-dangerous practices, sometimes getting into traffic accidents to no one's surprise. That phenomenon has been happening. So there's already been a wide outcry during 2020 about the treatment of the delivery drivers. And so, you know, a small loosening up you're seeing is now the delivery times for different meals to have gotten longer, something I would have

waited 20 minutes for now it's going to take 30 minutes so that's already a slight friction point for potential people thinking about getting delivery but i think going on and thinking about the general environment in which we've been talking about anti-trust about thinking about whether these tech platforms have too much power about you know are they really adding value there is a case that's not too unlikely where the government comes and sort of say actually you you really need to treat these workers much better than you are treating them before you need to sort of

pay them higher salaries, give them wider delivery times so they're not risking their lives to try to make these things work for you. And that could significantly cut into the margin and usability of the food delivery platform for Meituan. And yet, I think that that is a very real possibility given how, quote unquote, bad it has been in recent years. It's funny, you know, we talked about on the episode about how

We didn't really know how gig labor worked in China and we assumed it was different. But the echoes of Prop 22 here in California and classification and treatment of delivery workers and rideshare drivers in the US, it sounds like the same version is happening in China, just different.

In a Chinese way instead of in a US way. For sure. And that's why I think it is kind of parallel worlds. You see the similar trends, similar things happening in both spaces at the same time. And I think, again, then it's much more something to do with the properties of the tech platforms themselves and the incentives they create rather than anything else. Well, there's one area outside of kind of the bear case, and I'm sure we'll kind of keep coming back to other mentions of it here, but you had brought up this idea of

traffic takers versus traffic givers, especially in the concept of Tencent and Alibaba. Can you explain that concept a little bit? Yeah, and I think this is kind of a general trend that runs through kind of our entire conversation. So taking a step back, right, and to lay out what the worst...

looks like in terms of general traffic acquisition is that if I'm a startup and I need to get traffic to my new D2C offering, I would go on Facebook, bid on the appropriate keywords on Instagram, and then I would go on Google and bid on the appropriate keywords. At the end, it's a relatively straightforward process. And I can be sure that if I

give money to these two major platforms. And, you know, if I'm very ambitious, I can go on maybe Amazon if I'm setting my stuff there. And maybe I'm really ambitious, I'll go on Twitter and Snap. But those are kind of very secondary considerations. I think most advertisers can just do Google and Facebook and call it a day and do relatively well for a very long time. But that is not the case in

In China, the advertising landscape is way more fragmented. As you guys have mentioned, it seems like every single super app these days have a ad slice revenue. So I can buy advertising in WeChat, Alibaba, Pinduoduo, Meituan, Bilibili, Xiaohongshu, KuaiShou, Douyin, and

none of them have actually significant market share, which is very interesting. It's not like there's one or two kingmakers. And that's partly because the place where you would really want to buy traffic, aka WeChat, they don't actually have a lot of inventory because of a specific product decision made to not spam people with a lot of advertising. So completely different to Facebook or my Instagram where I'm sort of served an ad

every 30 seconds if I'm scrolling relatively fast. In WeChat, I don't see that in my friends' moments. I don't really get any advertising pop-ups in my chats. So it's a very clean interface, but it also means that where people are spending most of their time, they're not being served advertising. And so there's actually a scarcity of inventory on what is theoretically the biggest traffic platform in China.

which then means that every other players don't have a dominant position in traffic and everyone is sort of being able to partake in advertising revenue if you're a tech player. But as a startup or just as a general merchant, I have to spend enormous amount of resources on all of these platforms to acquire the same customer.

because I just don't know if I should be putting my money on Xiaohongshu or Kuaixiu or Douyin or Meituan just to get that one particular set of customers because they're not all congregated in one place. Coming back to what we were talking about in the beginning about owning the user, all of these apps have done such a great job of owning the users that is now incredibly fragmented across each app in some sense. Therefore, that's where I sort of come back to this idea of

you know, at the end of the day, because Tencent has created this artificial constraint on traffic, then they can by default position themselves as the traffic givers in terms of their comparative advantage, right? They can sort of say, hey, what we have is a vast private traffic network comprised of decentralized conversations across WeChat.

And our comparative advantage is that we will allow you to post your links on our platform. So, you know, right now...

Right now, if... And where? In what context? So I will allow you to post them in chats. So for instance, I can't post links to Douyin in my WeChat. This is actually what Ben and I were hand-waving on the episode. And we were like, oh, Tencent in lightweight ways puts their hand on the scale. Yes, exactly. This is the lightweight way. So this, if... Lillian, if you and I are going back and forth on WeChat,

If I want to send you a Douyin link, I can't.

Initially, there were some periods when you can't even send the link. It would just be recorded as spam. I think right now it's also changing because of antitrust laws. So you can probably send me like a link to a video, but it's like really, really high friction. But yeah, for a period of time, they would just block all links. It's like the Instagram, Facebook thing. Exactly. Or the Instagram, Twitter thing. Twitter thing, yeah, exactly. Oh, yeah, yeah, yeah. Yeah, yeah. Exactly. Wow. So WeChat does that for...

Basically any apps that Tencent doesn't have a Spanish or stick.

Okay, so that's how you think about them as a traffic giver then, absent having the ad platform. The product decision on Tencent's part to not have a robust advertising inventory in WeChat, was this sort of grander plan what was behind that in thinking like, oh yeah, well we invest our other business or maybe our main business as we invest in companies. This will give us more power there or was it something else entirely? Yeah.

So as far as I know from the history, it definitely started off from a kind of more product decisions to have a very pure product. Because back in the day, like Alan Zhang, who designed WeChat is very much seen as a product visionary. And he wanted a very clean interface. You know, he felt like anything that was too cluttered, that would be taking attention away from customers.

what the user was there to do. And they were also competing at the time against websites and kind of interactive modes that did have a lot of advertising. So I felt like in the early stages, it was a very kind of counter positioning move, as we would probably say with the seven powers to sort of get people onto the platform and also make them feel safe that their data and everything else wasn't being sold because there's no advertising.

And they don't have great insight into why they then decided to continuously keep it that way. I think I can speculate on the fact that they had so much traffic as a result and they can then divert into useful sources, into gaming and everything else that they kind of realized that was the power and to dilute it with additional advertising is to almost kill the goose with the golden eggs.

to sort of finish off the traffic giver analogy of Tencent, then we have Alibaba, right? Who, you know, with their flagship Taobao and T-Mail offerings are kind of very much marketplaces that

is where you finish buying something. So they are very much to me, when we look at, you know, I sort of call this concept of owning the funnel and, you know, any marketing students will be very familiar with this. You have the top of the funnel, which is you create awareness and then you sort of go to the middle of the funnel where you are thinking about consideration. Then the bottom of the funnel is when you actually convert, you actually buy the thing that you've been looking for. And

every kind of Chinese tech companies have sort of been thinking about building out the funnel, but they each start off from different places of comparative advantage. So we've talked about

Tencent as kind of being the top of the funnel, they have traffic and they gear traffic and they can then push that down to other conversion platforms like Pinduoduo or like Meituan. And so that makes that combination extremely powerful. But Alibaba as an existing conversion platform, what they're really looking for is

more top of the funnel traffic. And when you look at that framework, that's also why the investments tend not to do too well, to put it lightly, because they have always been, you know, looking at strategic collaborations from,

how can I get additional traffic to my Taobao platform, to my Tmall platform? They're not there to sort of say, how can we make you more successful, right? Unlike Tencent, who's very much like, okay, pinduoduo, here you go. Here's all this traffic I'm going to drive to you. Now you have a bunch of users. Now you can convert them. Boom, you have money. Alibaba is very much like, well, I'm going to invest in like, uh, egelema, and egelema hopefully will get me more traffic because people will be buying food off their egelema

So, you know, Lullema for me is just a lower CAC cost, hopefully, because people will get hungry and they'll want to get food and then they'll maybe go to Lullema. So they wouldn't think about potentially investing and making those platforms that they invest in as successful as potentially Tencent is able to. And so that's kind of what I talk about when I talk about traffic takers versus traffic givers. Interesting. So is there amongst entrepreneurs in China,

Is there a preference for Tencent over Alibaba as your big strategic investor? I think it very much depends on the specific starters. But yeah, I think the general word on the street is kind of very much with Tencent. I mean, at the end of the day, they're both very formidable. I feel like it would be very silly for any kind of entrepreneur to sort of turn their nose up at Alibaba because at least...

there's the carrot and there's the stick. You might not think the carrot that Alibaba is offering us is too great, but they have a very big stick.

It's not like if you can't get investment from Tencent, you're like, oh, well, not going to go to those Alibaba guys. But you'll still take their money if you have the option. Exactly. You might think. I've heard Tencent's kind of sharky or maybe in American parlance, not as founder friendly as Alibaba is. Do you know if that plays into it at all, where people perceive Tencent to be a sort of dangerous friend or foe to be in bed with? Yeah.

Yeah, it's a good question because I think Tencent, because of their focus on investment, they would be very happy to invest in 10 companies in the exact same space just to make sure they don't lose out on the one company that takes off, right? And then like maybe post-investment, they'll also be happy to do things like, hey, why don't you guys merge and create a monopoly? I don't know whether that's what you want, but that'd be really great for us. And they've done that already as we've kind of seen the case of Meituan and they're in the process of doing that with,

Hu Ya and Dou Yu, which are kind of the Twitch equivalent of China. So two live streaming platforms that they both have significant positions in and they're trying essentially to get merged. So I think that is the worry for many Chinese.

It's like, okay, you're going to invest in me, but what do I actually mean to you? Are you just going to go and invest in 10 other platforms tomorrow? Whereas I think Alibaba is quote unquote a bit more faithful. They'll invest in you and you'll probably be like the only bet they make in that. And they'll try to be more helpful. But I've also heard other stories of, you know, depending, you know, people are

quite like the hands-off approach for Tencent. They typically get a check from them and don't really need to hear anything from Tencent if they don't need it. Whereas Alibaba has maybe more of a cohesive structure and would want to work and have a close relationship with their investing companies. So it varies, I think, by segment and by founders.

It's like the 1990s Sequoia versus Kleiner in the Valley of Kleiner had the Koretsu approach and Sequoia was like, Hey, you, you know, you do your own things. Lily. And this is actually a really good segue into the sort of last question that I had for you as it pertains to our mates. One episode is,

I was befuddled to see that the Alibaba-backed Meituan and the Tencent-backed Dianping, that when those two merged, Tencent was the one who owned a large part of the combined company and Alibaba got off the table altogether and then went and invests in Lillema. And...

I'm scratching my head at the whole thing. Like, how did Alibaba get pushed off this cap table? Do you have any insight into why at the end there it was not Alibaba that was the sole sort of large shareholder of the Chinese tech behemoths in the combined entity?

Yeah, it's a great question. From what I've read, and you know, no one will really ever know the truth. So I just want to highlight that ahead of time. This is all us just sitting in a room telling stories to ourselves. Whatever the word on the street is. That's what we do here at Acquired. So perfect. Exactly. So it's just Alibaba got really pissed that

Wang Xing would even want to do this with Tencent. And I think it was almost seen as like a declaration of war of, oh, you want to do this? You want to go and take money from our greatest competitors and then, you know, have this alliance with them? How dare you? We're going to go and sell your stock on the market for a huge cut from Tencent.

what we invested in you, and then we're going to invest in your competitors. It felt like it was a scorched earth approach post Wang Xing deciding to go with Tencent. And actually here I would highlight as well, when I was listening to your narratives, the impression I had had for what went down was

Basically, given what we're discussing about the price giver dynamic between Tencent and its investee companies. So Tencent was really kind of helping DMP along in the early days by giving it lots of traffic and also equipping it with favorable terms on WeChat Pay, which they've just launched at that time.

And Wang Xing was experiencing a lot of anxiety in terms of, hey, you know, Tencent is really giving DMP these rocket fuel to take them to the next stage. Ali, you've invested in me. What are you going to help me to do? And the story was basically he had a meeting with An Group and Ali at the time, and they were like, well, you know, nothing too much. You know, we are investors. We're partners. But like, what do you kind of expect us to do? Right.

Right. Because it's like, you know, AliPay, that's a core business. They're not going to give you a break. Exactly. Tencent was probably like, yeah, sure. We'll give you better terms. Well, I think apparently left that meeting incredibly bitter and was like, oh, you know, these Ali guys, they talk such a big game about being your partners. But when you actually need them, they're not there for you. Right.

came out of the meeting and the word goes, he gets on the phone to Neil Shen because of course, you know, you, you, you have a direct line to Neil Shen at that point. And then he was like, Neil, like these alley guys, like, you know, they're messing me around. They, they, they said they would give me all of these things, but they've done nothing to help. And he's at a point where he's thinking that he's going to just get killed by all of these other players on the market. And he's like, okay, can you connect me to the Tencent team? And because Tencent,

And Nielsen is like best buds with the Tencent investment team. He's like, yeah, sure, of course. So the story was kind of, Wang Xin was kind of almost the first instigator where he really felt like he needed to make moves to not get crushed in the war. So that's why he sort of double-crossed

And then Alibaba, once that happened, was like, how could you do this? You know, now you're dead to me. Now I'm going to go invest in your competitor. And then I think that narrative at least made some sense to me in terms of... How on earth this happened. Exactly, exactly. Because obviously from a financial perspective, it's just like, well, that doesn't really make sense. Why were you leaving all of this money on the table unless you sort of

bring it to this added angle of just like they were just very pissed off for some reason and they weren't thinking very rationally. And they probably thought by doing this they could like really crush Meituan by like, you know, selling this stock on the secondary market for a fraction of the cost and then also investing, not just investing, but buying, right? Buying Lama and their thought process.

is that we are Ali, we have built up historically a great foundation of B2B sales team because that's also kind of one of Meituan's comparative advantage. In fact, Meituan's COO came from Ali so that he incorporated some of that DNA already from the field sales mentality.

But Ali was like, well, we are the granddaddy of this entire strategy. We've got a whole host of field sales that can go out and acquire merchants. So why don't we just do this ourselves rather than rely on Meituan? We will just equip Erlema with all the resources and have that DNA and then they'll be part of us and then they will then compete directly in this space. And then actually maybe we will be better for it.

because we are also like betting that we will execute better than them. So, you know, then it doesn't really make too much sense to own part of what we think will be a dying company because we're going to be so much better than them at the end of two to three years. It's fascinating. Well, Lillian, this wouldn't be acquired without us asking you, are there any playbook themes for China Tech broadly that you want to highlight here before we wind down the episode?

Yeah, so I have a bunch and this is a not so subtle plug for my newsletter and I write about a bunch of them on my sub stack. Oh yeah, please do.

So yeah, I think we've covered a lot of them on this episode already, but just let me take a step back and sort of rehash some of them. So one of the first playbooks, I think, is this mentality of owning the user rather than providing a function. So when you are starting out, you're very much thinking about what does this particular user really want to see in their functionality suite, rather than sort of saying, what is it that we think we are really capable on as a function and as a utility? So I think...

Every Chinese firm has sort of very much adopted that. And that's part of the reason why, you know, a lot of the consumer apps we see are super apps. Another playbook trend, which we've also talked about, is kind of this idea of owning the funnel. That as you...

think about owning the user, right? Essentially, you essentially want to own the entire user journey they have from discovery to conversion. And I think that translates into this funnel structure where you start off with thinking about how do you get traffic, then you think about how you sort of provide a selection of service and products to them, and then you think about how you make them convert. So all of those also ends up translating very directly to products as well. So just

just a pure point on the conversion. This is one of the reasons why you see every tech players also moving into payment because you want a frictionless embedded way where you can pay on the platform without leaving the platform and you post payment. You also want to sort of think about how you sort of cultivate,

customer service and goodwill with the existing customer base as well. So that leads itself to potentially SaaS tools or direct messaging with the consumers. So again, these two are kind of, I think, foundational tools

at least previously foundational playbooks for Chinese tech, how they operate. And I think there's other traits and attributes that maybe are not so much playbook, but more kind of ethos of the tech ecosystem, I think is very interesting. So for instance, copying is nothing to be ashamed of. It is purely a way to make yourself on the same level as your competitors. You've actually just outsourced product research to your competitors and save you and your team a bunch of time and resources. So, yeah.

So, you know, there is no shame in copying. In fact, as a Eugene Wei has stated, as he was talking to a friend of his in China, a Chinese executive who says, if my competitor came out with a product and my team hasn't copied it within two weeks, that means my team is incompetent. So it's again, a very different way of way of operating. So yeah, I think those are

some top of minds, I guess, heuristics for Chinese tech operators. But I think there's plenty of others which I would encourage readers to check out. I hadn't heard that quote from Eugene. That's awesome. And listeners, definitely, Glee and Substack Chinese characteristics is excellent. Can't recommend enough. I think we've certainly gotten a much more nuanced view on Meituan in particular than I think Ben and I were capable of providing. So this is awesome. Absolutely.

Absolutely. My biggest hope was just you guys learn how to pronounce things a bit better. I'm really happy just to record you guys a section where I pronounce all the Chinese names. We'll have to bother you before the next time that we do another China episode. We need like a... Oh, shoot. What are those? The tools that DJs use. You know, hit the button to play clips. We could just have Lillian's recording of all of that. Yes, perfect.

Yeah. And hopefully next time our education is off microphone, that would be that would be ideal. Awesome. Lillian, we can't thank you enough. One more time. Where can listeners go and read your great work? Yeah, you can find my work at lillianlee.substack.com or you can just search for Chinese Characteristics Substack to find me. Fantastic. All right. Well, listeners, thank you again for joining us. And thank you, Lillian. Thank you guys for having me on. We'll see you next time.