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🔑 Key Takeaways

  1. Step out of your comfort zone and pursue something that excites you, even if it seems unconventional at first. The best opportunities often arise from trying something new.
  2. Chinese tech firms prioritize user acquisition and retention through constant feature additions, while Western tech companies focus on core utility and product identity. Understanding these cultural differences can benefit cross-cultural tech collaborations.
  3. Chinese apps aim to retain users by offering a variety of services like finance, entertainment, and discounts, and expanding to community group buying to tap into a larger market.
  4. Lower-income, lower-tier cities and townships make up over 50% of China's population and have very different buying habits. Community group buying for groceries is crucial for tech companies to reach these populations and encourage sustained buying habits, leading to long term growth.
  5. Community group buying on WeChat offers a cost-effective model that benefits both residents and group leaders. Its success relies on the growth of China's consumption-led economy and people's changing consumption habits. It presents a new frontier for growth in China as tech players and the government have strong incentives to make it happen.
  6. Tech companies in China must balance growth with responsible business practices to avoid negative spillover effects and comply with regulators. Investors should consider the impact on long-term sustainability.
  7. In China, tech companies like Tencent face a different regulatory landscape than in the US, with government ties and censorship playing a role. The focus on new technologies also presents challenges and opportunities for companies like Alibaba and Meituan.
  8. Douyin's new feature offers discounts for popular restaurants and presents a content-led mode in the market. This poses a challenge to Meituan's convenience-based model and could impact its business.
  9. Due to the lack of a dominant traffic platform, startups and merchants struggle to acquire customers in China's advertising market. Tencent's artificial constraint on traffic positions themselves as the traffic giver, allowing others to post their links on their platform.
  10. Tencent's focus on pure product and providing traffic to other platforms sets it apart from Alibaba's concentration on owning the top-of-the-funnel through strategic collaborations. Tencent's investment approach may also impact startups' perception of their true value.
  11. Alibaba and Tencent have different investment approaches, with Alibaba being hands-on and Tencent being hands-off. The rivalry between the two companies led to a scorched-earth approach, with each trying to outdo the other.
  12. Chinese tech companies prioritize owning the user journey and cultivating customer service and goodwill. Copying is not frowned upon and they strive to provide a frictionless payment experience, leading to potential SaaS tools or direct messaging with consumers.

📝 Podcast Summary

Understanding the nuances of influencer terminology in China

Lillian Li, author of the Chinese Characteristics newsletter, explains that there are different terms for influencers in Chinese. 'Z mit' means self-media, while 'KOL' means key opinion leader and 'Wanghong' means very hot on the internet. Each term has its own nuances and shades of meaning. Lillian also shares her journey from being a VC across Europe to moving back to China to write the newsletter, which she initially started out of boredom. This shows that sometimes the best opportunities can come from stepping out of your comfort zone and pursuing something that excites you, even if it may seem unconventional at first.

Differences in Product Development Approach between China and the West

The China tech ecosystem has a different way of thinking about product development compared to Western tech. With the mobile native first approach, Chinese firms had greenfield opportunities to grow users cheaply and retain them. This has resulted in continuous feature bloat for Chinese super apps, which have become jack of all trades instead of masters of one. The Western tech approach is to focus on core utility and attributes that users associate with the product. Chinese tech firms also face a highly competitive market with thousands of competitors, making user acquisition and retention a priority. Understanding the inherent differences in tech culture can help bridge the gap between Western and Chinese tech cultures.

Chinese Apps' Strategy to Keep Users on their Platform

Chinese apps' core mission is to own the user and make sure they do not leave the platform, as losing users could result in forgetting about the platform altogether. To achieve this, apps try to offer everything users want, such as finance, discounts on takeout, and entertainment, to lengthen their time spent in-app and reduce the cost of acquiring new users. Chinese companies face fierce competition and focus on selling everything to the group of people they are selling one thing to, as China's population is four times the size of the US, making it a huge market. Community group buying is the new area of growth for Chinese internet giants as it targets people living in lower-tier cities.

Understanding China's Tiered City System and the Importance of Community Group Buying for Tech Companies

China's tiered city system includes affluent first-tier and second-tier cities with similar buying habits to London or New York. However, there are also lower-income, lower-tier cities and townships that make up over 50% of the population and have very different buying habits. For tech companies, catering to the lower-tier cities is crucial for sustained growth and community group buying has emerged as a model for reaching these populations. Groceries are a key consumption good in lower-tier cities and townships and provide a high volume-based service that encourages sustained buying habits. The growth of the middle class in China over the last 15 years is illustrative of what could happen to lower-class or tier 4 and below cities in the next 15 years.

Community group buying: A revolution in China's lower-tier cities fueled by WeChat groups.

Community group buying is a growing trend in China, where WeChat groups are used to offer deals and discounts on groceries to residents in lower-tier cities. This model eliminates the need for user acquisition costs and reduces the cost of serving customers as well. It's a win-win for both the community and the group leaders, who earn a commission on each order. The success of community group buying depends on whether China's consumption-led economy will take off, and whether people will change their consumption habits. The tech players and the government both have a strong incentive to make it happen, as it could be the next frontier for growth in China. Keeping users within their ecosystem is critical for these companies, hence the focus on grocery buying and other services.

The Balancing Act: Growth vs. Responsibility in China's Regulatory Environment

Meituan, like other tech companies, subsidizes prices to acquire customers and gain market share. However, the Chinese government is concerned about the impact on small businesses and vulnerable members of society. Regulators are willing to let companies innovate, but will step in with regulations if they see negative spillover effects. The government's concerns about systemic risks, like disrupting agriculture, are also a factor. This highlights the need for tech companies to strike a balance between growth and responsible business practices. Investors should be aware of the complex regulatory environment in China and consider the impact on companies' long-term sustainability.

Tech Companies in China Face Complex and System-based Regulatory Changes

In China, the narratives around tech companies' regulatory changes are more complex and system-based compared to the simplistic narratives in the US. Tencent, being a big player in the tech industry with close ties to the government, is expected to have parts of its business clipped and face more financial regulations. However, Tencent also serves certain purposes for the Chinese government like censorship and propaganda. For its next phase of growth, China's focus will be on edge computing, industrial internet, semiconductors, agriculture, and seed, and Tencent has only been a big player through investments. In comparison, Alibaba has fared well in making these technologies directly. Meituan's future may not be as rosy due to increasing competition in community group buying and the government's favoritism towards smaller merchants.

Douyin Launches a New Group Discount Feature to Compete with Meituan

Douyin, the Chinese version of TikTok, has launched a new group discount feature that disrupts the location-based recommendation and discounting market. The feature recommends and offers discounts for nearby restaurants to replace Dianping. Douyin aims to make users go to specific restaurants because they are popular and provide a good photo opportunity. This presents a new challenge to Meituan, which positions itself around convenience. Douyin's parent company ByteDance is now the most valuable private company in the world and has the resources to invest in a capital-intensive fight. However, discontent around the treatment of delivery drivers on Meituan puts pressure on the company. Overall, Douyin's new feature presents a competitive and content-led mode in the market, with a potential impact on Meituan's business.

Fragmented Advertising Landscape and Scarcity of Inventory in China's Super-App Market

The advertising landscape in China is fragmented and each super-app has its own revenue and user base, leading to a scarcity of inventory on what's theoretically the country's biggest traffic platform, WeChat. Thus, every other player doesn't have a dominant position in traffic, and everyone is being able to partake in advertising revenue if they're a tech player. For a startup or a merchant, it's tough to acquire customers because they don't know where to put their money to get that one particular set of customers, as they aren't all congregated in one place. Tencent has created an artificial constraint on traffic, making it possible for them to position themselves as the traffic giver, allowing others to post their links on their platform.

Tencent vs Alibaba: Different Approaches to Traffic and Investment

Tencent's WeChat initially made a counter positioning move to get people onto the platform by having a very pure product without advertising, which was a product decision made by the product visionary, Allen Zhang. Tencent's traffic giver analogy involves providing traffic to other conversion platforms, while Alibaba aims at owning the top-of-the-funnel by concentrating on strategic collaborations to get additional traffic to their conversion platforms. Entrepreneurs in China generally prefer Tencent, although both Tencent and Alibaba are formidable players. Tencent's focus on investment often leads to investing in multiple companies in the same space and merging them later, which may worry founders about their true value to Tencent.

The Clash of Investment Approaches between Alibaba and Tencent

Alibaba and Tencent have different investment approaches. While Alibaba is more hands-on, building close relationships with the investing companies, Tencent adopts a more hands-off approach, giving the invested companies freedom. The dynamic played out during the Meituan and Dianping merger, where Alibaba was excluded because Wang Xing of Meituan felt that the company was not sufficiently supportive. He reached out to Tencent and was able to secure the support he needed. This angered Alibaba and was seen as a declaration of war. Alibaba then sold its stock on the secondary market and invested in Ele.me. The rivalry between Alibaba and Tencent led to a scorched-earth approach with both companies trying to outdo each other.

Chinese Tech Companies: Focusing on User Ownership and Super Apps

Chinese tech companies focus on owning the user journey, from discovery to conversion, and cultivating customer service and goodwill. They adopt the mentality of owning the user rather than providing a function, which leads to the development of super apps. Copying is not frowned upon and is instead seen as a way to outsource product research and stay on the same level as competitors. These trends and attributes are the foundational playbooks for Chinese tech companies. Companies want a frictionless embedded way to pay on their platform without leaving it, which has led to most tech players moving into payment. Cultivating customer service and goodwill leads to potential SaaS tools or direct messaging with consumers.