Happy Holidays, TechBuzz listeners! That’s right, it’s Mid-Autumn Festival, followed closely by Golden Week for the Pandaily team back in Beijing. In honor of the holidays — and to commemorate *almost* six months since we released our first episode of TechBuzz back in April of this year — co-hosts Rui and Ying-Ying are taking off as well! We will be back with a new original episode on October 9.
In order to not leave you hanging, and in recognition of Meituan-Dianping’s recent IPO in which it raised a healthy $4.2 billion from investors, we share our first ever replay. If you haven’t already, have a listen to Episode 10, which we produced back in back in June when Meituan-Dianping was first rumored to be preparing to go public. We talked about its founder, Wang Xing 王兴, and heard from guest James Hong, an angel investor who has known Wang for decades.
Thank you for being a loyal listener, and enjoy!
As always, you can find these stories and more at pandaily.com. Let us know what you think of the show by leaving us an iTunes review, like our Facebook page, and don’t forget to tweet at us at @techbuzzchina to win some swag!
(Y: Ying-Ying Lu; R: Rui Ma; J: James Hong)
[0:00] R: Hi TechBuzzers, we have something a little different for you this week. We also have a small announcement to make before we get started. We are going on holiday! That’s right, it’s Golden Week, also known as October National Holidays in China, where basically the entire country shuts down officially from the 1st to the 7th. Pretty much no one is doing anything – including our Pandaily team who are all going on their much-needed vacations. So you’ll find that, if you’re trying to do a deal with China, no cigar, everything comes to a standstill. Even if you aren’t in China but you live in a big city, you might notice that there’s going to be a big uptic in Chinese visitors around you, because last year, over 6 million Chinese tourists went overseas during this break.
R: So what does this mean? It means that there is no TechBuzz China next week. It also means that this week, while we are researching on future stories for you, we are going to be doing our very first re-play. That’s right, we are replaying you Ep. 10 on the recently IPOed Meituan – the super app that won against a thousand clones.
R: This episode first aired in late June. Unlike some of the other companies we’ve covered recently, for example Xiaomi and NIO, who had pretty lacklustre IPOs and priced near the bottom of the range, Meituan priced at the highend of the expectations last week when it went public on the Hong Kong Stock Exchange. It had a 5% gain on its first day, although it’s back at IPO price as if yesterday, September 24, meaning that the company is now worth just a bit under $50 billion USD. That makes it pretty much head-to-head with Xiaomi. It also makes it the fourth largest listed Chinese Internet company in the world, after BAT. In the following episode, you’ll hear our views on Meituan, how it came to be, its business model, and a lot about its founder and CEO, Wang Xing. We really enjoyed making this episode, and really hope you enjoy listening to it. Here we go!
[2:22] Y: What are we talking about today, Rui?
R: A superapp, or an app that does many, many things
Y: Wechat is one of them, it does messaging, payments, social media, gaming – we’ll cover it though on a future episode.
R: Because today, we are going to talk about Meituan.
Y: Meituan, the super app that is like a Yelp + groupon + Ubereats + Fandango.
R: It’s now also doing bikesharing, and ridehailing.
Y: Last valued at 30bn, Making it the 5th largest unicorn in the world, after Ant Financial, Xiaomi (based on its rumored IPO valuation), Uber, and Didi.
R: Meituan is supposedly going public at $60bn in Sept. We haven’t heard too much about Meituan in the past, not in the West at least. I think because it’s got no comparable analogue? But we are gonna tell you all about it today, And you let us know, by the end of the episode…
Y: Are you a Meituan fan? Most importantly, are you a fan of its founder, Wang Xing 王兴?
[3:44] Y: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
R: We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.
Y: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage.
R: TechBuzz China is a part of Pandaily.com, a new English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.
Y: And I’m your other co-host, Yingying Lu. We’d like to take a sec give a shoutout to some of our listeners who have written in.
R: A huge THANK YOU to Liyun Li, Lillian Kho, and Jamila Trindle.
Y: Again, if you enjoy listening to us, please take the time to leave us a rating or review on iTunes and elsewhere! It’s really helpful for our sponsors.
[4:43] R: Okay, Ying-Ying, I know you’ve had a complaint against the HBO show, Silicon Valley, for a while now. You felt like all the Chinese characters on there were scammy copycats with really questionable ethics and also intelligence.
Y: Yeah, look at the role they have Jimmy Yang play, for example. Even the latest twists and turns that are set in China, they failed to include a character who is both clearly smart and clearly ethical. It’s such a shame and it made me pretty mad. But then again, no one character portrays a fully positive stereotype on that show, I guess.
[5:19] R: Yeah, I suppose you’re right. And today we are talking about a copycat, I think he’s in a different league. Wang Xing is the founder of Meituan, and he is a master copycat. He is category defining. Honestly, I’m not so sure he copied as much as integrated.
Y: Wang Xing is only 39 yrs old. He is from Fujian, a province known for producing clever businessmen, and went to Tsinghua, arguably the top university in China, where he studied electrical engineering. In 2001, after graduation, he was accepted into the PhD program at University of Delaware, but didn’t last long before succumbing to the lure of entrepreneurship and returned to China in 2004 to start a company with his former classmates.
R: At the time, he has stated that he had no idea what he was doing, he said that he was totally in the dark. But even from beginning, his projects were social in nature. His first project was a sort of friendmaking website, and by fall of 2005, the team had decided to make university social networks their focus.
Y: Sound familiar? They studied Facebook carefully and learning from the mistakes of their prior projects, launched Xiaonei, which means “inside campus”. Within 3 months, they had 30,000 users, which is a lot for the time. However, with no money to buy more servers and bandwidth, Wang Xing had to sell it to Joe Chen for about $2 million in Oct 2006, He was just 27 years old at the time. He wrote defiantly quoting Winston Churchill: “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” So dramatic.
R: That definitely sounds like Wang Xing for you. Anyway,Xiaonei was rebranded as Renren later on. It raised money from Softbank and IPO’ed in May 2011. I actually worked on this IPO, back then it was known as the Facebook of China. It raised about $740MM, and made Joe a billionaire. While we don’t know the details, I’m pretty sure Wang Xing didn’t get much of that upside.
Y: Nope. We are pretty sure he didn’t, because he quit Renren in back mid-2007 to launch Fanfou, which was the very first Chinese clone of Twitter. That’s right! After cloning Facebook, he set his eyes on Twitter.
R:Fanfou is such a great name, I really got to explain it to our listeners here. It actually comes from an ancient text where this one noble person is asking after the health of a very old official, and it literally means – is he still eating? Beacuse “fan” meaning food, and “fou” meaning whether or not. However, in the early 2000s, it became a meme that took on a different meaning. It now means “have you eaten?”, or 吃了吗, which any beginner Chinese student will know is the Chinese way of asking: “Hey, how’s it going?” That’s right, instead of “what’s up”, Chinese people ask each other if we’ve eaten. That’s what Fanfou means, basically “what’s up”.
Y: So, I can say “Fanfou, TechBuzz listeners?”
R: Um, I think it works better typed out and not spoken. Fanfou’s earliest adopters were geeks, programmers, nerds.
Y: But after being really hot in 2008 and 2009, it fell victim to censorship and was shut down, along with many competitors, in the summer. And it was inoperable for over a year and a half, or 505 days exactly. During this time, however, Sina Weibo came along and won the market, which we can talk about another day. This marked the second time Wang Xing had lost a great multi-billion-dollar opportunity.
R: I imagine at the time, he probably thought to himself, “this is still the beginning”, because not long afterwards by March 2010, he had launched Meituan, yet another clone, but this time of Groupon.
[9:07] Y: Now Groupon, if everyone would remember, launched in late 2008 and was the darling of the Internet industry, which meant, of course, that people were gonna try to replicate the model, globally, especially since it was a relatively low tech business. And in China, who better to do that than Wang Xing, who had already spent five years of his life trying to understand how to build communities online, because people at the time understood it as “social selling” even though it wasn’t really.
R: Clones for Groupons sprang up everywhere, and nowhere more quickly than in China. That eventually became known as the Thousand Groupon War or 千团战.
Y: Chinese people really like giving names to battles. It’s a habit carried over from love of the Romance of the Three Kingdoms.
R: Yeah, remember 3Q? Anyways, if Wang Xing was mostly known to geeks on Fanfou before the war, he became really known after starting Meituan. The Thousand Groupon War was one of the first bubbles in Chinese Internet, when a lot of capital poured in and everyone was getting funded left and right. Most of it went to user subsidies in the form of discounts.
Y: Which was great for consumers but terrible cash flow for the startups, and pretty soon, by the end of 2011, just a year and a half later, the thousand strong Groupon clones had whittled down to just Wang Xing’s Meituan, plus a few others, including ones started by the Internet giants, BAT.
[10:29] R: I really got to give you guys some perspective on how crazy it was, because that wave really took entrepreneurship in Chinese Internet to a whole new level. Group buying was a pretty easy business to start, right? Basically, everyone had one. I kid you not. I invested in, not one, but three founding teams who had previously started top 10 China groupbuying businesses.
Y: One of them actually went public!
R: Yeah, eventually anyway, it was in 2015 and it was called 55tuan. I didn’t invest in that company unfortunately, I invested in their subsequent endeavour. I just checked, by the way, 55tuan redirects to Meituan now.
Y: See? Meituan outlasted its independent competitors and is really the only one you go to now.
R: But while it had pretty much won the Groupon war back in 2011 and 2012. That respite was brief, because it quickly found itself in another war – the war of takeout.
[11:23] Y: Now we have to introduce a key player in this war – Dazhong Dianping or just Dianping, which literally means reviews. We have to give a plug for Dianping here, because it was both a great product for its time, and it had a pretty introverted founding team, so they were not really loud in either Chinese or Western media. But they have such a good story.
R: Such a good story. They’re founded by cal alumni, my alma mater, and they were founded in 2003, almost a whole year before Yelp was launched. At least for the first nearly ten years of existence, it was very similar to Yelp. It was a review service for restaurants and other offline services. It basically had a monopoly in the citiesthat it operated in, everyone I know used it, especially for anything food related
Y: Yeah. To this day I rarely get any invites for getting together that isn’t a Dianping link. I also think it is better than Yelp, because from very early on, it allowed you to rate the restaurant on different dimensions, such as taste, ambience, service, and even tag specific dishes.
R: It was one of the first investments by Sequoia China. Sequoia China put in $1MM way back in 2006. Google also put in some money. It is one of its very few investments made in mainland China, and it put in $4MM in 2007.
Y: It was really capital efficient and didn’t raise any more money until 2011, when it accepted $100MM to grow its groupbuying and other businesses, which was by this time called O2O in China.
R: O2O means Online to Offline. You know how everything is AI or blockchain these days? Everything was O2O in China back then, at least for a good 3 years.
[13:02] Y: Anyway, what happened was back in 2013, Zhang Tao, the founder and CEO of Dianping, predicted that groupbuying would die – especially for Dianping, who already knew what users were looking at and considering to buy. So Dianping put in “flash discounts,” which allowed users to get instant discounts off their purchase in the store … basically like coupons.
R: Because users of Dianping had such high intent to purchase already, this obviously worked really well, way better than Groupons that directed traffic from scratch and tried to create intent to purchase.
Y: However, Dianping, being born in the early 2000s and having just a generally slower approach to expansion, had really locked down the first and second tier cities, but was much slower to expand compared to its newer “move fast break things” competitors. In fact, the media called it a “slow company,” 慢公司.
R: But group buying made it change. Group buying at the time, was the largest wave of venture capital investment in Chinese Internet, like ever. Even slow Dianping was forced to adapt. Dianping expanded into food delivery, and small business services. It made a $80MM investment in ele.me, a food delivery service that was recently bought by Alibaba for $9.5Bn, which we briefly mentioned in Episode 1. At the same time, Tencent invested for a 20% stake in Dianping back in 2014. So things seemed to be going well, or did they?
[14:27] Y: Not quite. These were capital intensive businesses. Getting Groupons required thousands of offline salespeople going door to door signing up vendors on individual campaigns. A lot of O2O businesses were capital intensive offline. Food delivery required thousands of delivery workers on scooters, definitely not cheap.
R: And Meituan, who already had millions of users for Groupons, saw the same opportunity in food delivery and small business services as Dianping did. But, that meant it had the same need for capex. What happened for all of 2015 was basically, we all heard constant rumors about the megafundraisings these two companies were both going to do. They were fighting for investors and investor’s moeny, but none of these rumors were confirmed. What we do know though is that both were losing money very quickly and they were just in an emergency situation.
[15:19] Y: In October 8, 2015, smack in the middle of Golden Week, or China’s annual weeklong national holiday, Dianping and Meituan suddenly announced a merger.
R: Yeah, it was really shocking – at least for me. The press release said that the transaction had the support of Alibaba, Tencent, Sequoia – three of the major shareholders.
Y: The new combined entity would have co-CEO and co-Chairman roles, with Zhang Tao and Wang Xing taking up both. So at least on the surface, it looked like a complete merger of equals. Even the new name was a combination of the two companies. Xin Mei Da, or new Mei Da. Mei for Meituan of course and Da for 大众点评, Dianping’s full name.
R: Both brands were supposed to operate independently after the merger, and focus on “innovation.” The combined entity would have 80% market share of the group buying business and would immediately try to complete a $2-3Bn fundraise because remember, they were running out of money. Everything sounded very good right?
Y: Not really, because just over a month later, on November 13, 2015, the new company announced key HR changes. Zhang Tao was forced out of the company. I remember there was a photo of him sobbing on the shoulder of his co-founders that was all over the news that week. It was real sad.
[16:37] R: Team Wang Xing had won. First he had survived the Thousand Groupon War, now he had survived the Dianping merger. But he wasn’t going to stop there.
Y: There’s a common saying in Chinese about the four pillars of life: 衣食住行 (clothing, food, shelter, and transportation). Alibaba and Tencent have been especially aggressive about taking a piece of all four of those businesses as much as possible. Chinese people often joke that there’s not one day that goes by without at least one of the companies, or their subsidiaries, interacting with you and knowing what you’re up to.
R: Wang Xing had a leading position in food already, but he was not gonna let the other ones go so easily. Where others saw big competitors in fashion (Alibaba), lodging (Ctrip), and transportation (Didi), Wang Xing saw synergies and the opportunity to integrate.
Y: Meituan bought its own payments license in 2016 and so can transact independently of Alipay and Wechat payments. It aggressively expanded into travel and now has wrestled significant market share from Ctrip and Qunar. It bought bike-sharing leader Mobike in April 2018 this year for $2.7Bn. It has began experimenting with ride hailing last year and has engaged in open war with Didi this year, getting 20% market share quickly in Shanghai and Nanjing.
R: Well, that’s a lot of stuff going on here. A year ago, in a rare public announcement, Meituan said it sells 1.2MM rooms sold daily in its hotel service, another 1.15MM tickets sold to travel destinations, and 11MM takeout orders per day. In 2018, on its 8 yr anniversary, it claims to have 600MM users and 5MM businesses on its platform.
Y: And on the food delivery front? Meituan is winning. Earlier this year, a report showed that in 2017, Meituan had market share of 54%, followed by ele.me of 30% and Baidu trailing at 14%.
R: Wang Xing is doing even better in group buying. In 2016 post merger, Meituan-Dianping had 75% marketshare, with Baidu Nuomi a distant second.
Y: I think Wang Xing is officially kicking butt.
[19:03] R: Me too. We are going to introduce you to a long-time friend of Wang Xing and this guy is going to explain to you why he thinks the guy is so successful. Let’s hear what he has to say to our listeners.
J: My name is James Hong, I am an angel investor, and I met Wang Xing around 2006 when he was working on a startup called Xiaonei with a team of 4 or 5 guys in Beijing and I met him back then when he was trying to scale that up and I was able to help him out a little bit with that. I’ve known him about ten years and have kept in touch with him over the years as friends.
R: James is being modest. He’s the founder of Hot-or-not, which is basically a site that does exactly what you think it does, and if you look him up on Wikipedia, he is known to have had a “significant influence” on the people who went on to create Facebook and Youtube. He had some observations about Wang Xing that we are going to share with you.
J: Wang Xing has a lot of characteristics that make him a very strong entrepreneur. He’s obviously very smart and thoughtful, but he’s also kind of very unemotionally methodical about his approach to solving problems. In addition to that, he has a very low ego, he’s smart but he also recognizes that there are other smart people in the world and that he seems to spend a lot of effort to speak to other people to get their perspectives and look for more data to solve his problems. In doing that he’s also very patient and I think he has a lot of faith in common sense and believes that hype is not what wins in the end, but actually solving problems and making forward progress on his companies. So he’s not the type of person who gets caught up in trying to look successful. He just is very heads down and focused on solving his problems and moving his business forward and I think that’s what makes him so successful.
Y: We then asked James what he thinks of Meituan specifically.
J: I’m very bullish on Meituan and I always have been and mainly because of Wang Xing. I remember ten years ago when it was pretty early days in the company, he was telling me about his competitors and some of them he felt were kind of making up numbers or at least pumping them up in ways that were not sustainable and didn’t really make much business sense. Rather than copying those tactics, I remember him saying that he would never lie about his numbers and I think that’s the main thing, he won’t lie to others and especially won’t lie to himself, and that’s what makes him face those problems, the business truths that he has to solve, whether they are pretty or not. He just has this laserlike focus on improving his company to the point where it eventually starts working.
[22:00] Y: As Wang Xing said to our friend at The Information back in April, it wants to become the Amazon of services. If the other companies are making people’s virtual lives better, that’s fine. But he’s interested in that O2O online to offline piece. Because until we all become cyborgs, that’s still where we are spending a lot of our time and money, in the offline world. It’s kind of like the exact complement to livestreaming, which is all about living online. Anyways, Wang Xing wants to capture all of that.
R: If you google “Amazon of services”, that was Thumbtack’s tagline back in 2011, as well as many other startups that have come around since. But I really don’t think any of them have come close to what Meituan has been able to achieve.
Y: Meituan did raise that large round of funding post merger after all. It ended up being $4Bn at a $30Bn valuation back in October 2017. But earlier this year, there’s already been leaks that Wang Xing is headed for an IPO in Hong Kong by the end of 2018, to raise another $3Bn.
R:The Information updated that news last week saying that the rumored price is a whopping $60Bn, which we told you at the beginning of the podcast. In comparison, Groupon has a market cap of about $2.5Bn these days and Yelp, by the way, is not much better at $3.5Bn. In this case, it’s pretty clear that the copycat has really outshined and outgrown the original.
Y: James had something to say about that.
J: He succeeds because he’s patient and he outlasts his competitors. He never rests on his laurels. He knows that until he’s done he can’t stop improving and he just has to keep moving forward and this seems to be a common trait among my more successful friends I’ve noticed. And Wang Xing, definitely, in addition to being smart, in addition to being good at figuring out strategies and tactics and things like that he also just has a personality where he can work through these things and kind of, go through the painful process of solving those problems until he’s finally at the finish line.
R: Wang super tenacious. I’m a fan. I think I need to go get a Fanfou account now.
Y: What’s going to be your first message?
R: Probably what Wang Xing posted on Weibo the day Meituan was founded, about eight years ago on March 4, 2010. His message was, “Every time you spend money, you are casting a vote for what kind of world you want”, in English.
[24:28] Y: So what do you guys think, would you cast a vote for Meituan?
Y: Having trouble keeping track with the fast-moving Asia tech landscape? Try searching the keyword you care about on www.asiaventurepedia.com today
R: www.asiaventurepedia.com is a tool built by Startup Greater Asia — an information hub and strategic advisory company that facilitates business partnerships and tech transactions between the U.S. and Asia. If you are looking for that local partner, new client, or technically new market, ask Startup Greater Asia how they can help.
R: We do like to give a shout out to our partners. It’s SupChina. In addition to our podcast here with Pandaily, they publish the excellent Sinica podcast. It’s a weekly discussion of current affairs on China, with journalists, writers, academics, policy-makers, and business people.
Y: So while we only focus on tech, they really give you the entire overview. SupChina, hand in hand with GGV Capital, also publishes the GGV 996 podcast, which interviews top leaders in China tech and investment. We’re big fan, so please go check them out too.
R: That’s all for this week, folks. Thanks for listening. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter at @techbuzzchina and @thepandaily. My personal account is @ruima.
Y: Right. Definitely follow the new twitter account. My twitter is @ginyginy. We will see you at the same time next week.
R: TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is a new English language site that tells you “everything about China’s innovation.” Our producers are Carol Yin and Kaiser Kuo.
: Note that the stats of China’s food delivery market share we quote here is according to an industry report released by research agency DCCI as of July 2017. This is different from Wall Street Journal’s recent piece on Meituan, where it quotes food delivery market share stats according to industry researcher Analysys International.