Meituan

[0] You've been a VC in my heart for a long time.

[1] I take offense to that and also thank you.

[2] Welcome to Season 8, Episode 3 of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

[3] I'm Ben Gilbert, and I'm the co -founder and managing director of Seattle -based Pioneer Square Labs and our venture fund, PSL Ventures.

[4] And I'm David Rosenthal, and I am an angel investor based in San Francisco.

[5] and we are your hosts.

[6] Ben, your bio there.

[7] It's a little different this time.

[8] Congratulations, my man. Thank you.

[9] Very long Seattle, excited for the future of the Pacific Northwest.

[10] It's very exciting.

[11] Well, well -deserved promotion to managing director.

[12] Well, thank you.

[13] And I mean, frankly, it's most exciting just to have a new $100 million early stage fund to invest in Pacific Northwest entrepreneurs who also might be acquired listeners.

[14] Well, today we were talking about a company that frankly, couldn't be further from the Pacific Northwest.

[15] Well, maybe you could.

[16] I suppose if you're on the east coast of the United States, you might be literally halfway around the world.

[17] But today, we dive into a Chinese app that started as a Groupon clone by a founder who had previously started a Facebook clone and a Twitter clone.

[18] But this bike -sharing Yelp -esque door dash of China is much more than a clone.

[19] This AI power delivery company is also a ride -sharing company.

[20] It's a real -world supermarket, a merchant analytics platform, a fintech platform for those merchants who need loans, a travel booking app for consumers, and a way to buy cheap movie tickets.

[21] So what on earth is going on?

[22] So you're saying it's like DoorDash and Airbnb and Square and booking .com and Expedia and Uber and Instacart and more.

[23] Yelp, Fandango, Safeway.

[24] The list goes on and on.

[25] So, Maytuan is what people have dubbed a super app.

[26] And if you're confused, well, so were we before we started the research.

[27] So over the course of this episode, we will dive in to unpack this curious company, how it became China's third largest tech company behind only Tencent and Alibaba.

[28] And it was founded over a decade after each of those two companies.

[29] It's pretty crazy.

[30] It's like, frankly, amazing that it's in the same category as those or are quickly rising into that same category and of course wildly displacing Baidu, the classic third in the big three Chinese tech companies.

[31] Yeah, alongside Pinduoduo as well, which we covered last summer.

[32] This story is honestly amazing.

[33] I mean, we'd heard we'd reference Maituan on the show.

[34] Oh, it's this super app.

[35] It's this really interesting Chinese thing that is unlike anything in the West.

[36] This story is incredible.

[37] Frankly, a shame we haven't told it before now.

[38] Indeed.

[39] Well, that's why we have eight seasons of Acquired.

[40] Well, are you an Acquired Slack member?

[41] If not, what have you been waiting for?

[42] It is a spectacular community discussing, of course, all things acquired and recent episodes, but more importantly, it is just a genuine and smart group of people having thoughtful, nuanced, and respectful discussion about the tech and investing news of the day.

[43] You can join at Acquired .fm slash Slack, if that sounds like your cup of tea.

[44] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[45] Yes, ServiceNow is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[46] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsofts at the NVIDias as one of the most important enterprise technology vendors in the world.

[47] And, just like them, Service Now has AI baked in everywhere in their platform.

[48] They're also a major partner of both Microsoft and Nvidia.

[49] I was at Nvidia's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[50] So why is ServiceNow so important to both Nvidia and Microsoft companies we've explored deeply in the last year on the show?

[51] Well, AI in the real world is only as good as the bedrock platform it's built into.

[52] So whether you're looking for AI to supercharge developers and IT, empower and streamline customer or service, or enable HR to deliver better employee experiences, service now is the platform that can make it possible.

[53] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[54] For example, smarter self -service for changing 401K contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement.

[55] before people even chat with you.

[56] With ServiceNow's platform, your business can put AI to work today.

[57] It's pretty incredible that ServiceNow built AI directly into their platform.

[58] So all the integration work to prepare for it that otherwise would have taken you years is already done.

[59] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to ServiceNow .com slash acquired.

[60] And when you get in touch, just tell them Ben and David sent you.

[61] Thanks, ServiceNow.

[62] Well, lastly, to keep this short and sweet, if you are not an acquired LP, you should totally become one.

[63] Aside from all the things we tell you about the LPE program on every episode, we just shipped a killer episode on the state of SAS in 2021 with Emergence Capital's newest general partner, Jake Saper, where he dove deep on their recent investment thesis, deep collaboration.

[64] Do you have to say deep in a deeper voice?

[65] Deep collaboration.

[66] I'll handle.

[67] Deep collaboration.

[68] It's also, it's been a big month for Acquired guests and hosts in terms of promotions to general partner.

[69] It is.

[70] The wave is upon us.

[71] Well, we of course explore the insane state of tech valuations right now in the frenzied market we are in with Jake as well as deep collaboration.

[72] So tune in LPs or feel free to join at Acquired .fm slash LP if you are not and we can't wait to see you there.

[73] Well, David, before you take us in, listeners, as always, this show is not investment advice.

[74] David and I may have investments in the companies we discuss on this show, and it is for educational and entertainment purposes only.

[75] That's my disclaimer.

[76] It is your show to run now.

[77] Take us in.

[78] Tell us everything.

[79] Well, I sure hope it's for both of those purposes.

[80] I mean, equal measures.

[81] Okay.

[82] Before we dive in, we have to say a big, big thank you.

[83] the TechBuzz China podcast.

[84] They did an excellent job covering Maituan and its crazy story.

[85] I think among all English language reporting on China Tech for Maitwan specifically, they did a fantastic job, along with, as always, the evolving for the next billion podcast by GGV and Bernard Leong over at Analyze Asia.

[86] You used all of their work in this podcast.

[87] They're all fantastic.

[88] Definitely go check them out if you follow China Tech.

[89] And you definitely should be following China Tech no matter where you live.

[90] Okay, so Maituan, we start history and facts back in February.

[91] We're in early March now, so I'm right about the same time of year, of 1979 in Longyan, China, which is a small, by China standards at least, city of about two million people in the southern part of the Chinese coast, kind of not too far from Hong Kong, about like a, and Shenzhen, six -hour drive, sort of north of there, if you have a sense of Chinese geography.

[92] Are you, like, on Google Maps?

[93] Yes.

[94] Okay.

[95] Like, this is a very descriptive explanation here.

[96] Well, the more of these episodes we do, the more I get to know China Geography.

[97] But yes, I was on Google Maps.

[98] We start, so in February 1979 in Longyang, with the birth of a baby boy named Wang Xing.

[99] And Wang is going to be our protagonist here, one of our protagonists through this story.

[100] And this was a pretty interesting time and family he was born into.

[101] So this was right at the beginning of Deng Xiaoping's reform and opening in China that we talked about on the Alibaba episode a lot.

[102] I also talked about on the Tenten episode.

[103] And Xing's father was one of the very kind of first early generation of entrepreneurs in China after the reform and opening.

[104] You know, part of that let some people get rich first doctrine.

[105] And so his father owned a cement factory.

[106] So a long way from a tech entrepreneur.

[107] But he was a real like small business entrepreneur in China in the 80s and 90s.

[108] So Shane grows up, you know, in this sort of new middle class, upper middle -class family.

[109] And in middle school, he gets interested in computers, like so many of us, and he convinces his parents to buy him a clone, this is going to be appropriate, of an Apple 2.

[110] And then shortly thereafter, he convinces them to upgrade to a PC.

[111] Wait, there were Apple 2 clones?

[112] Of course there were.

[113] It's China.

[114] So I don't know if it actually ran MacOS, but it was, you know, some like knockoff of an Apple too.

[115] Wow, crazy.

[116] Totally crazy.

[117] So then he upgrades to a PC.

[118] And he also, and this is pretty unique, he convinces his parents to get him a modem.

[119] So this is in like the early 90s.

[120] The internet was barely a thing anywhere, but especially not in China, as we've talked about on previous episodes.

[121] So he starts going online and doing what early internet users in China did at the time.

[122] was they would go on the kind of proto message systems, the Bolton Board systems in China, which literally like every future Chinese tech billionaire was hanging out on these BBSs.

[123] I know.

[124] I feel like I'm like, I swear to God, I've heard this story before.

[125] It's like, I don't know, like Cupa Cafe in Palo Alto or something.

[126] It's like literally all of them.

[127] They're all hanging out on these BBSs is Pony Ma's there, Jack Ma's there, William Ding from Netties, is there.

[128] Of course, Colin Huang from Pinduoduo is there.

[129] You just named five of the ten most valuable Chinese companies.

[130] Totally.

[131] Or at least Chinese tech companies.

[132] It's amazing.

[133] So Xing's there.

[134] He does very well in school.

[135] He ends up going to Singhua University in Beijing, which is one of, if not the best, university in China, where he studies electrical engineering.

[136] So he's like very much on the path here.

[137] He graduates in 2001.

[138] And he does what every due to full, you know, future Chinese internet billionaire would do.

[139] He goes to the U .S. for grad school.

[140] Didn't you go to University of Delaware?

[141] Yeah.

[142] So this is where his path diverges a little bit.

[143] And David, like this is, what, 15 minutes from the hospital where you and I were both born.

[144] Yeah.

[145] And it's like probably 15 minutes from the hospital.

[146] I was actually born in Philadelphia.

[147] You were born in.

[148] That's right.

[149] But your next door neighbor or something was a doctor at the hospital I was born.

[150] It's crazy.

[151] But I went to high school in Wilmington, which is the biggest city in Delaware.

[152] Let me tell you, Delaware at this time, like, you know, I love it.

[153] It's a very beautiful place.

[154] But like I was there going to high school at the same time as Sching was going to grad school at UD, you know, 30 minutes away.

[155] This was not an internet hotbed.

[156] Far from it.

[157] It was an engineering hotbed, interestingly enough, with DuPont and Gore, with all the sort of materials and mechanical.

[158] But, but no. Like, it actually.

[159] actually a pretty good CS school later down the road, but not at this point.

[160] No, like literally nobody is thinking about starting tech companies in Delaware in 2001, 2002, 2003.

[161] I can guarantee that from firsthand experience.

[162] So I have to imagine that this was like pretty serious culture shock for him.

[163] So he stays a couple years.

[164] But then unlike many of the other personalities we just talked about, he ends up dropping out because he wants to get into tech and the internet and he thinks, you know, maybe this isn't the right place to do it.

[165] And in 2003, this website does show up among students on the University of Delaware campus.

[166] A new kind of hot social networking site.

[167] I think they actually raised some money from some.

[168] pretty prominent venture capitalists on university campuses.

[169] And Qing is like, this is it.

[170] I have found my calling.

[171] I'm going to go recreate this in China.

[172] Of course, we're talking about Friendster.

[173] I was going to say, I thought Facebook was started in 2004.

[174] Yes.

[175] Yes, it was.

[176] Quick diversion down Friendster.

[177] Isn't there like some affiliation with like Reed Hoffman and Mark Pinkis?

[178] Like, isn't the Friendster story deep into people who went on to build, you know, phenomenally successful social products later?

[179] I think so.

[180] I always give the Friendster story and the Friend Feed story mixed up.

[181] Oh, that was Brett Taylor.

[182] Yeah, that was Brett Taylor.

[183] And that was like after Facebook.

[184] That was like a 2006, 70.

[185] It was like an aggregator, right?

[186] Yeah, yeah, yeah.

[187] Let's put a pin in this.

[188] I think we owe Friendster an episode or at least an LP episode.

[189] Yes, we got to dive into the history there, especially because it would go on to seed may to want.

[190] So, she leaves Delaware.

[191] He moves back to China.

[192] He goes back to Beijing, and he hooks up with some of his former Singhua glassmates.

[193] And he starts, duo, duo you.

[194] Apologies, if that's not the exact correct pronunciation.

[195] Yeah, we probably need to say that for several things on this episode.

[196] Yeah, several things.

[197] We apologize.

[198] We're trying our best.

[199] Literally translates as many friends.

[200] And the idea is he's going to, you know, just like he saw Friendster kind of take hold at the U .D. campus.

[201] He's going to target college campuses in China, build up this social networking site.

[202] Unfortunately, like Friendster, it doesn't really work.

[203] It's probably too early.

[204] It's too early for Frenster in the U .S. In China at the time, you know, college students, yeah, they probably were using computers, but, you know, your average person did not have access to a PC.

[205] Mobile was still distantly on the horizon.

[206] So he tries to pivot.

[207] duo duo duo you into a sort of different kind of service still for students for chinese students studying abroad to kind of stay in touch with each other that doesn't work either but then in 2005 then as you said facebook arrives on the scene and so shig is like ah okay i've got it this time and he realizes that maybe he made a mistake the first time and that was that he didn't clone friendster exactly thoroughly enough.

[208] He's not going to make that mistake this time.

[209] So he and the team, they create a new site.

[210] They call it Xiaone, which literally means on campus.

[211] And they take Facebook, they take Facebook, the facebook .com, and they recreate it to the exact pixel, like the same shade of blue, the same text, the same layout, the same everything.

[212] Literally the early versions of the site had the footer at the bottom a Mark Zuckerberg production No way How like how do you clone that Is it like they didn't know what it meant So they were like no you definitely do what it meant It's just like Because people in China were hearing about Facebook And so I think the idea was like It's like let's convince people this is Facebook We're going to pretend to be Facebook Fascinating Amazing amazing But it works A lot of people start using it And a lot of Chinese students start using it.

[213] It works so much that just like the real, the Facebook, they need to start buying servers more than they can afford to pay for themselves.

[214] I feel like I'm watching a knockoff of the social network.

[215] It is totally a knockoff of the social network.

[216] This is so great.

[217] And it's even better by the twist that this story is going to take later on.

[218] So they probably try and go raise money.

[219] They can't raise money.

[220] I bet VCs at the time are like, this is crazy.

[221] You literally say a market.

[222] Zuckerberg production at the bottom.

[223] I'm not going to invest in this.

[224] Well, the Chinese venture ecosystem is also dramatically underdeveloped.

[225] I mean, you think Sequoia China only started in 2004.

[226] And I think the venture ecosystem before they got there certainly existed, but it wasn't anything like what the U .S. venture ecosystem looked like in the dot -com era.

[227] No, and I don't think it was particularly risk -seeking.

[228] We'll get to this later.

[229] But yet, Dian Ping actually was one of Sequoia China's first investments, and that wasn't until 2006, which is the same time frame as this.

[230] And David, your drop in names we haven't gotten to yet.

[231] Maytuan will eventually merge with Dian Ping, become Maituan Dianping, and then drop the Dian Ping.

[232] It's cleaner and go just to Maitwan.

[233] And that's how we get that.

[234] But, yes, you already are putting in an interesting point that is the company that they ended up merging with and buying later in a mega crazy merger that'll be a huge point of this episode already existed by this point.

[235] and this guy is working on a Facebook clone.

[236] Totally.

[237] So what they decide to do, they end up getting an offer from another entrepreneur in China named Joe Chen to buy the company.

[238] So they sell the company to him for $2 million in October 2006.

[239] And Joe obviously wouldn't have bought it if he didn't see the potential for this thing.

[240] And, you know, the Facebook of China, that sounds like something this could become.

[241] He's like, well, but the name, though, you know, Facebook already at this point is starting to expand beyond colleges.

[242] And if you really want to go big, you want to be, you know, the Facebook for everything.

[243] And so this name of on -campus, eh, not so great.

[244] Let's change it to a new one that, you know, a new one that incorporates everybody.

[245] Literally, why don't we call it everybody?

[246] Why don't we call it Ren -Ren?

[247] So yes.

[248] Oh, this became Ren -R -R -R -R -R -Began.

[249] This is Ren -Ren.

[250] Whoa.

[251] That we're talking about.

[252] And, David, what is Ren -Ren?

[253] Renren is the Facebook of China.

[254] I presume many listeners know about Ren, it's a public company.

[255] But yeah, they became enormously successful.

[256] Literally were called the Facebook of China, which is funny, given that they started as a pixel for pixel clone of the Facebook of China.

[257] And they raised a bunch of money from SoftBank and Masa back in 2009, 2010.

[258] And then they went public on the New York Stock Exchange in 2011 before Facebook.

[259] They were the Facebook IPO before Facebook, they raised $740 million in the IPO at almost a $6 billion market cap.

[260] And Wang Xing created the whole thing, but he sold it for $2 million.

[261] Which you could chastise him for, but it actually was the right decision if you knew what he was going to go on and create and how much more valuable that would become.

[262] A hundred percent the right decision.

[263] I mean, it was either sell it or it was going to die.

[264] And hey, he's still a kid.

[265] right and he gets two million dollars great so what does he do he says guys i can do this all day this is like 2007 i'm just going to spin a wheel and like roll some dice pick whichever u .s internet company web 2 .0 you know hot company i'm gonna i'm gonna recreate let's go on to the next one so he sold he sold what will we become ren ren at the end of 2006 by the beginning of 2007.

[266] He's back in the game with Funfo, which literally means have you eaten, but is a kind of idiom that's more like, hey, what's up in China?

[267] What do you think that is?

[268] What is the network that people were using to send, hey, I'm eating my breakfast, and my breakfast is, is Twitter.

[269] It's Twitter.

[270] He creates Twitter.

[271] Again, it's just like, and this one is supposedly, I didn't actually go looking at these screenshots or whatnot, but it was, I think, even more insidious that you could like, or clever would be another way to put it, that you could actually think that you were using Twitter based on how they did the domain names and stuff.

[272] It also becomes a huge hit.

[273] So we're talking about 2007.

[274] Twitter launched in 2006 out of audio, like midway through 2006.

[275] Funfo gets two million users right off the bat.

[276] So that may have been more users than Twitter at the point in time.

[277] It unfortunately, though, for Wang Xing, it's so successful.

[278] that it attracts the attention of the CCP because it's like Twitter.

[279] You can say whatever you want on there and people are spreading political dissent on there.

[280] So the CCP shuts it down for a period of time.

[281] I don't know that this is exactly, but I think it might have been like 12 or 18 months that it was shut down.

[282] It's honestly amazing that Ren Ren didn't get shut.

[283] I mean, I'm sure that the deal was struck there so that, hey, you get to exist as long as we get to, you know, have some content moderation on there.

[284] But the fact that he was able to build and sell a successful social media company in China is kind of amazing.

[285] Yeah.

[286] Actually, is a good point.

[287] I didn't look into this, but maybe part of selling it and Joe getting involved was maybe around that.

[288] I don't know.

[289] That's speculating.

[290] So Funfo gets shut down.

[291] And then it does eventually reopen.

[292] And I think it's still live today.

[293] But in the intervening era, Sina Weibo and Tencent, you know, move into the micro -bogging space and, you know, it doesn't become a winner.

[294] But, you know, hey, Wang Xing's like, well, second time, I guess that was technically the third time.

[295] He had Friendster and then he had Facebook and then he had Twitter.

[296] That didn't work.

[297] Okay.

[298] I'll go on to the next one.

[299] And so now we're in sort of late 2009, early 2010.

[300] And there is a very particularly obvious U .S. tech company, tech, in quotes, company that makes sense to clone at this point in time.

[301] Am I thinking of the right company?

[302] They were the fastest ever company to a billion dollars in revenue.

[303] I also thought that billion dollars in revenue, same thing as you.

[304] I went and looked it up as fastest ever to a billion dollars in valuation at the time.

[305] Very different than revenue.

[306] We're talking about Groupon, of course, which took the world, took the U .S. by storm in the late 09, early 2010.

[307] People were losing their heads in the tech community for this company.

[308] Completely.

[309] Completely going, gaga.

[310] I mean, now it's kind of cute, right?

[311] Like, companies, we know companies that are valued at a billion dollars before they've, you know, come out of stealth.

[312] But at the time, it was, you know, when Series A's were getting done at like a $6 million post, that a company, you know, a year old would be worth a billion dollars.

[313] Complete lunacy.

[314] And also, people were, when you say tech company in quotes, like Groupon took scores of salesmen pounding the pavement in order to go and convince local businesses to do this thing.

[315] Their churn rates were terrible because it was awful for the businesses and they would leave immediately.

[316] And so they had this awful cost structure, this awful retention life cycle problem with customers, but they had so much capital in relative to other tech companies that it was go -go time, pump it all in.

[317] Yep.

[318] Well, it was, you know, revenue.

[319] They probably did hit a billion in revenue pretty quickly because it was one of those things where, like, you could pump capital in and get revenue.

[320] You just didn't get any profits out of it or anything defensible.

[321] So in March 2010, Wang Xing and the team incorporate May -Tuan, coming from May, which means beautiful and Tuan, which means together, beautiful together.

[322] And at this point, you know, he's developed, dispeliorably.

[323] his not yet, you know, hitting it big with his cloning factory, he's developed quite a bit of a reputation in Chinese tech entrepreneurial and venture capital circles.

[324] And the Chinese VC industry has matured a lot by 2009, 2010.

[325] So right off the bat, they raised $12 million from Sequoia China when they launched in early 2010.

[326] And then a year later, in the beginning, of 2011, they raise another $50 million from Alibaba.

[327] So this is pretty big.

[328] Again, these numbers seem quaint today.

[329] But at the time, like $12 million essentially seed from Sequoia and China, like that's huge.

[330] You're entering this mega hot space.

[331] Then you raise 50 million bucks from Alibaba.

[332] This company is crushing it.

[333] And we'll talk about this more later.

[334] So I just want to tease it here a little bit, but, you know, raising money from an Alibaba, Tencent, I guess we used to say Baidu, but it hasn't come up much in this episode or, frankly, in recent conversations.

[335] They're a VC and a big tech company.

[336] They're, you know, they're a Fang company and a VC all in one.

[337] And so they give you a ton of capital because they have a ton of capital.

[338] And then they can also really help your business.

[339] I don't want to get too far ahead of my skis, but for anyone wondering, Ali Papa, why are they leading the Series A?

[340] That's how China works.

[341] That's very much how China works.

[342] So there's just one problem, though, which is that for all of Wang Xing's, you know, capability, vision in a certain sense, it really is vision in knowing what, you know, to clone and how to make it adapt it for the Chinese market, all the capital behind him, all the great resources.

[343] He's not the only one who has this idea that, hey, Groupon might work in China too.

[344] In fact, he's not even one of like a dozen or one of like 50 or one of 100.

[345] He is literally one of 5 ,000 entrepreneurs in China who would have the same idea and start coupon companies.

[346] You think we're exaggerating.

[347] This period is like known in Chinese tech history as the period of the quote unquote thousand Groupon war and Thousand is underestimating.

[348] There were there were 5 ,000 companies.

[349] At one point 20 to 30 new Groupon clones getting started every single day in China, including Groupon itself, which did a JV with Tencent to enter China, which, you know, if you're going to enter China, you've got to do it with Tencent.

[350] They do a JV.

[351] You know, they, if anybody can succeed here, it's Groupon, called Gao Peng, and this just turns into, like, this becomes a bloodbath on the order that, like, is unbelievable.

[352] Like, people in the U .S., you know, in Western markets think, oh, man, food delivery.

[353] in the U .S. That was a bloodbath.

[354] There were like four different players that were going after this.

[355] China scale is all we need to say.

[356] It's like, oh, in that previous company you were talking about, it's like, oh, well, they had only 2 million users.

[357] Like everything in China scale is so much bigger and faster and more competitive and, you know, more gritty and, I mean, the 996 thing is real.

[358] Like, if you hit onto something, you better be working 99 hours a week, six days a week, or else someone else is going to with your idea.

[359] Yeah.

[360] Well, definitely somebody else is going to.

[361] So the other thing, you know, like you said, Ben, the nature of the Groupon business is there's not really any tech involved.

[362] Like you need a website, basically.

[363] But the business is local salespeople going to merchants, restaurants, karaoke bars, massage parlors, you know, and the like, and walking in the door and signing them up to get on Groupon and then running marketing stunts, you know, in local cities, getting users to sign up.

[364] And every city is just as hard to sign up as the previous city.

[365] Like, you don't really have scale advantages by being already in 50 markets.

[366] It's just like, well, no one's in this market yet, so it's war to win that market.

[367] Yep.

[368] Now, unlike many of the other thousands of competitors, Wang Xing figures out in this process, you know, people were thinking up until this point, you got to remember, like the technology adoption curve, the computing adoption curve in China looked very different than the West.

[369] You know, most users in China never experienced the Internet on PCs.

[370] They just went right to mobile.

[371] Right.

[372] And at this point in time, even that was only just starting to happen.

[373] So the people who did use the internet in China were in the tier one elite coastal cities in Beijing, in Shanghai, in Hongzhou, you know, the big in Shenzhen, in Hong Kong, people that had access to computers.

[374] So most of these startups were focused on those cities.

[375] But Wang Xing realized, hey, the tier two, the tier three, the smaller cities, people start.

[376] to get mobile phones, or they have access to the internet in internet cafes.

[377] And this product, the Groupon product, is actually a really good fit for those cities.

[378] So he and the company expanded to many, many more cities than a lot of their competitors.

[379] And that was one of the key things that helped them, I won't say win, because nobody won't here, but survived.

[380] Become one of the few remaining last standing.

[381] Become one of the few remaining last standing.

[382] Become one of the last -staining companies.

[383] And also, you know, having Sequoia and particularly Alibaba capital and might behind them helped a lot.

[384] But by the end of 2011, so this whole cycle plays out in like one year, maybe 18 months.

[385] By the end of 2011, there are just a very, very, very small number of these companies left.

[386] There's Maiton.

[387] There's the operations of the BAT themselves, which they have small operations, but mostly they've invested in companies.

[388] and then there is a very, very different company that is still left standing called Dian Ping that we've referenced.

[389] Yeah, which is fascinating for them watching, you know, this thousand Groupon War come up around them.

[390] They're not in that space, really.

[391] They had to pivot into that space.

[392] It's so fascinating thinking about if you are running the Dian Ping business, like, what do you do with all that mean?

[393] happening around you in a very near adjacency.

[394] It's funny.

[395] We'll tell the story now.

[396] I mean, I could maybe argue they shouldn't have gotten into this at all because they had a great, great business.

[397] But the net result of them getting into it is that they then become Maitwan Dampeng and now they're the fourth, the largest internet company in China.

[398] Okay, so unlike Maituan and Wang Xing, who they weren't just unabashed about copying, it's like, that was their thing.

[399] They're like, yeah, we copy.

[400] We do it better.

[401] that's what we do.

[402] Dian Ping, which literally means reviews in Chinese, was actually like a genuine innovator.

[403] I don't know if they were unique among Chinese tech companies in this era, but they were certainly special and were an unincredible internet company.

[404] So people sort of derisively at the time would call Dian Ping the Yelp for China, but A, it wasn't his way more than Yelp.

[405] And B, Yelp was the Dian Ping for the U .S. because Dian Ping was founded in 2003 and Yelp was founded in 2005.

[406] Totally.

[407] It was crazy realizing that in the research.

[408] I'm like, Yelp for China.

[409] This company started like when I was entering high school.

[410] Yeah.

[411] Back when Wang Xing was still at the University of Delaware, was when Dianping was founded.

[412] So the founder is this super, super sharp guy named Tao Zheng.

[413] And Tao was a, uh, So he was on the evolving for the next billion, then called 996 GTV podcast and talked about his journey.

[414] Great episode.

[415] We'll link to it in the show notes.

[416] So he had been a consultant in the U .S. and then a technology consultant.

[417] And then went to Wharton and did his MBA at Wharton.

[418] And he had been planning.

[419] He graduated in 2003.

[420] And he had been planning kind of like all the future internet billionaires at the time that he was going to go back to China after doing his MBA.

[421] at Wharton, and he would pick a U .S. tech business bottle to clone and, you know, raise money and run that playbook then.

[422] But unlike Xing, who, you know, is very confident in his abilities, shall we say, Tao was, he kind of looked around at the landscape in 2003, and he was like, I don't know all the good ideas have already been cloned already.

[423] Like, I don't know why I would be able to do something better that's already being done in the U .S. But I do kind of want to start a company.

[424] You know, I've had all this great experience in the U .S. And, you know, one thing that I really like doing while being an MBA student in Philadelphia, not far from the University of Delaware, was I would use the Zagat guide when I would go out and, you know, go to restaurants in Philly.

[425] I wonder if there's some innovation to be done there about bringing, basically bringing Zagat online.

[426] And, you know, the thing is in China, restaurants are kind of different.

[427] And there is nothing like the Zagat guide in print or online.

[428] And it actually would be way more useful because in China, you can order pretty much anything at any restaurant.

[429] Like you really, really want to know what the good stuff is at each restaurant.

[430] Otherwise, you might order.

[431] They might have four or five fantastic dishes that they do better than anywhere else.

[432] But when you get the menu, it's literally a Chinese menu.

[433] It's like a book.

[434] You could order anything you want.

[435] You don't really know.

[436] I need kind of a guide to all these restaurants.

[437] He said, okay, well, maybe this could be useful.

[438] I'll code it up.

[439] So he moves back to China after graduating, and he moves to Shanghai, which was not a tech hub at the time, and he codes, builds the website himself.

[440] Wow.

[441] I didn't realize he was a, like, technical founder.

[442] Yeah.

[443] I believe he had done technology consulting before Wharton.

[444] The story is he built it himself.

[445] So like super small scale, small ambition.

[446] Like he wants to build a company, but he's not thinking like Wang Xing here.

[447] It takes off like wildfire.

[448] And in contrast to the Groupon business model, online reviews for restaurants, and in particular for dishes within restaurants, is actually an amazing internet native business because of the asset that you build.

[449] It has an unbelievable moat around it.

[450] If you really hit the critical mass of not just restaurants, but then the dishes at each place that are good, like who can compete with you once you know every restaurant in every dish, especially when those restaurants have a Chinese menu?

[451] with a zillion options on them.

[452] Like, this is a pure sort of internet native data play.

[453] Yeah.

[454] So he does, you know, end up hiring and building a company around this, which we'll get into in a sec. But they come up with a bunch of key innovations.

[455] So Yelp hasn't even been started yet.

[456] And they have, so it's ratings and kind of a guide to restaurants.

[457] But like you said, Ben, it's not just the restaurants.

[458] It's the dishes at each restaurant that you can individually rate.

[459] You can also rate and see category rating.

[460] for each restaurant, like the food, the decor, the service, you know, you want to know, like, you know, you go on Yelp, the thing that sucks about Yelp is like, this is a four -star restaurant.

[461] Every restaurant is a four -star restaurant.

[462] Why is it four -star?

[463] Is it that, like, the food is really good, but the service sucks?

[464] Yeah, and they've tried to get into this, but yeah, I think it's safe to say, Yelp has just not executed well as a public company.

[465] I mean, in the last five to 10 years, it's just been disappointing.

[466] Totally.

[467] Very disappointing.

[468] Then there's stuff like, you know, on Yelp, you see the dollar signs, even on all U .S. review platforms.

[469] It's like, oh, this is a three out of four dollar sign restaurant.

[470] Well, what does that mean?

[471] So on Dian Ping, you see the actual average price of checks, of bills at restaurants.

[472] So you can be like, oh, yeah, I know exactly what this price is.

[473] It leads to much, much, much better discovery.

[474] They focus on photos and even short video, like way before Yelp or Google Maps or anybody realized that was important.

[475] Yeah, I was reading that Deon Ping, is in some ways a reviews hub like Yelp, but in other ways, it's a content business, that they're actually good at sort of building a massive trove of curated content and presenting that in a thoughtful, beautiful way to the user.

[476] Yep, yeah.

[477] I mean, this whole idea, you know, the Instagramming of food.

[478] It didn't start with Instagram.

[479] Dionne Ping, in no way, is Instagram.

[480] But, like, that's kind of where it started like, oh, I'm going to take a really nice picture of this meal that I'm about to eat at a restaurant.

[481] and I'm going to put it in my review on Dianping.

[482] They also go much deeper into the value chain.

[483] This I think was one of the things that Yelp whiffed on more than anything else was on Dianping.

[484] You see the reviews, but you can also book a reservation at a restaurant.

[485] You can order ahead what you want to eat at the restaurant.

[486] You can get discounts at the restaurant.

[487] And they do go in a small way into delivery from the restaurant.

[488] Never made any sense to me why all those are separate businesses in the U .S. you got Yelp, you got OpenTable, you got Grubhub, all the elements were there, but it was such a bad experience for the consumer to do that across three separate apps.

[489] So Dian Ping takes off spreads like wildfire in Shanghai and then bleeds out to other kind of Tier 1 coastal elite cities.

[490] Like we said, it becomes one of Sequoia China's very first investments.

[491] They raise $1 .5 million from Neil Shen in 2006.

[492] Do you know what Sequoia China's first fund size was?

[493] I don't know.

[494] I can't remember if Doug said on our episode.

[495] My sense is it was still a large fund.

[496] This million and a half dollar check, I do not think, was like a big bet for them.

[497] No, no, no. But this was not a capital intensive business.

[498] And then, do you know who leads their series B?

[499] Is it Google?

[500] It is Google.

[501] Yes.

[502] Tech giant strategic investor in China, not Baidu, not Alibaba, not Tencent.

[503] It's Google.

[504] and Google who can't do business in China at this point.

[505] So at least I don't think they were.

[506] I think this was right before they got kicked out of China.

[507] So how did this happen?

[508] Because I remember seeing this and I sort of just like accepted it at face value because like yeah, Google GV or Google Capital or Capital G has been investors in all these companies.

[509] But like, right, this was what, 2005, six, somewhere in there?

[510] Early 2007.

[511] What was going on?

[512] I don't know.

[513] I don't know exactly how it came to be other than, you know, the nature and dynamics of the Dianping business was very much like Google.

[514] Like, they sold advertising, much in the same way that Google sells advertising.

[515] It was an educational, high touch, very high margin experience.

[516] You know, they didn't have feet on the street at local stores.

[517] All the assets, you know, it was, it was an internet business.

[518] It was great.

[519] And was Google investing in other Chinese companies at this point?

[520] Not that I know of.

[521] I don't know how the relationship came about, maybe perhaps through Sequoia, because of course, Sequoia was a long with Kleiner were one of the two VCs in Google and on the board, and perhaps that's how it came about.

[522] So, Dianping goes along.

[523] It's doing great, building a wonderful high margin internet business.

[524] And then 2011 hits and the Thousand Groupon War era.

[525] And so then all of a sudden, you know, they've had the food and restaurant market in China, at least in Tier 1 cities, the internet food and restaurant market completely to themselves with this wonderful business that, market didn't even exist in tier two and tier three cities.

[526] And now you've got 5 ,000 competitors, including this crazy Wang Shingai, backed by Alibaba, also backed by Sequoia, going around with these foot soldiers, that's literally what they call them, they're like armies going into these restaurants and being like, hey, sign up for these coupons.

[527] So crazy.

[528] It's such a terrible, terrible business model.

[529] Terrible business model.

[530] So Dian Ping's trying to, like, gosh, what are we going to do?

[531] How are we going to compete with this?

[532] They know, they realize that this is a completely different company, completely different DNA, much worse business to get into, not to mention they're not even in the tier two and tier three cities.

[533] But they kind of decide like, well, crap, we got to play the game on the field.

[534] Right.

[535] Is this the wave?

[536] Is this the technology shift?

[537] And interestingly, it wasn't a technology shift.

[538] It was like a societal behavior shift.

[539] The technology shift was to mobile at this point, which is crazy to think about for the first six, seven years of Dian Ping, six years, people were just using it on PCs.

[540] Totally.

[541] And mobile wasn't really a thing yet, or at least not in the smartphone way that we know it today.

[542] But yeah, what they chose to sort of react to was, ooh, there's this big business model transformation going on that we need to be a part of.

[543] And other companies are going to steal our customers.

[544] And I think the really strategic insight that they have, which, because they do, despite having much less capitalization and a different business model, it's them and Maituan at the end of us that are left standing.

[545] The strategic insight they have is that because we have this other, you know, for lack of a better term, Yelp like business, our Dian Ping business, because that's what it is.

[546] Yelp is the Dian Ping like business, the inferior clone.

[547] We have more A touchpoints with consumers so we can, in theory, acquire consumers better.

[548] They're coming in through multiple front doors.

[549] we'll have to go spend and subsidize to get them in through the front door for our group on product, you know, for new customers in new cities.

[550] But for our existing customers that are already using us, you know, we've got the free real estate right in front of us.

[551] Every time they want to go out to eat, they're going on Dian Ping.

[552] It's like, okay, great, they've got an advantage there.

[553] They also have a, in the medium to long term capital advantage in that the Dian Ping business is a great cash flow dynamic, you know, high margin business, which can be used to fund.

[554] In a non -dilutive way, whereas everyone else has just taken on as much capital as they possibly can to compete with us.

[555] Exactly.

[556] And then finally, at this point, I don't know how much this was the case.

[557] Certainly it is the case today.

[558] They have this huge data asset, right?

[559] Like, they know what consumers like.

[560] literally the customers tell them.

[561] And then if you've been a Dianping user for a long time, they know which restaurants, which karaoke bars, which massage bar, which experiences you like.

[562] And then for new users, you can do collaborative filtering and AI and whatnot and predict pretty well what people are going to like.

[563] That's a huge advantage in this business.

[564] Yeah.

[565] If you can structure data that was previously unstructured, there are so much more interesting things you can do with it, like understand what people's preferences are in order to target them with different offers.

[566] Yep.

[567] Yep.

[568] Yep.

[569] So by the end of the thousand group on war, it's Maitwan, it's Dian Ping left.

[570] But they're kind of sitting there looking at each other.

[571] And, you know, both of them obviously are very smart in their own ways.

[572] And they're like, huh, this whole group buying business, you know, we've won, we've gotten to scale.

[573] Our revenue numbers are much bigger than they used to be.

[574] But like, we're not getting any technology leverage out of this business.

[575] I mean, look.

[576] Literally, it is a discounts business.

[577] We add another $100 million in revenue.

[578] Very little of that is flowing to our bottom line, and our cost structure margins are not improving.

[579] We need every new restaurant we sign up.

[580] We need more people in our sales army.

[581] Every new customer, literally the whole business is we're subsidizing customer experiences.

[582] Tao actually says publicly at this point that he predicts, even at the end of this, that he predicts the entire group buying space is just going to die, that there's no future in it.

[583] and Groupon had gone public.

[584] Oh my gosh, I'm doing this research.

[585] This brought back so many memories.

[586] Remember when Groupon went public?

[587] And that was like literally the high watermark.

[588] They never traded above their IPO price.

[589] I remember when they fired the CEO and when Andrew Mason one, you know, left to go spend more time with his family.

[590] Just kidding.

[591] The board fired me. That moment sticks in time for me as a pivotal moment in tech history.

[592] Such a character.

[593] And so like not his fault too.

[594] Like it was just a bad business.

[595] So their market can.

[596] was down 90 % from IPO price within like 8 to 10 months.

[597] Wow.

[598] And so that's the moment that we're sitting in here.

[599] And this is now late 2012.

[600] And there is this interesting thing going on.

[601] I have thought before doing the research that the whole food delivery online to offline, which is the Chinese sort of version of talking about this, originated in China and that it was DoorDash and Uber Eats and Postmates that sort of copied it here in the U .S. It basically emerged at the same time in both places.

[602] So right around the same time as Tony and Stanley and the Indian crew and Evan at Stanford were starting to think about food delivery and DoorDash was the same time that Maitwan and Dian Ping are kind of looking around and be like, hmm.

[603] We have all these restaurant customers.

[604] we have all these people who visit our properties, who are consumers.

[605] Is there something better we can do here?

[606] Is there something better we can do here?

[607] And D .D., of course, existed at this point in China and Uber in the U .S. And so you have this whole new, you know, it's like burned in my memory of like the great why now of DoorDash of like, hey, it's about the labor supply that has mobile phones that we can now bring on these gig economy laborers.

[608] and direct them and coordinate them in a way that was completely impossible before.

[609] Well, this is existing in China, too, now with ride -sharing and Didi.

[610] So they both go hard into basically converting this failed group buying business into a food delivery business.

[611] And so did Dian Ping still have sort of a successful Yelp -like business going on at this point?

[612] That has continued from 2003.

[613] all the way through 2021 in the future, and it's arguably one of if not the most important linchpin of the whole combined company.

[614] Yeah.

[615] It's fascinating because as you just repainted there, you know, it was Tony and company at DoorDash thinking about this.

[616] If you rewind further back, of course, you have Grubhub and Seamless and I think Just Eat in the UK exists already at this point.

[617] And there was a player in China that we'll get to at a minute.

[618] Oh, interesting.

[619] But of course, they didn't actually have the delivery fleet themselves.

[620] They were just the, you can order with us, and then it'll be on the restaurant to take care of whatever they want to do.

[621] It's also worth noting, you know, in the UB

[622].S.,

[623] how

[624] quickly

[625] we

[626] forget

[627] that

[628] Uber