For the benefit of friends and ecosystem, I wanted to share my learning from the Beijing trip. I was amazed at the hospitality of entrepreneurs and VCs, and got connected to many high quality entrepreneurs and best VCs in China market. Happy to share my learning. Learning is a continuous process , so I am open to evolve my views, but penning down some thoughts I think would serve as a starting point for many fruitful discussions.
Repeat payment use case apps are valued very highly
Bike sharing companies, battery pack sharing companies, vending machines, etc have raised a lot of money without proven unit economics. They are burning a lot of money and even the opex cost per use is not recovered in revenue per asset — even then they are able to raise capital. Large firms are realising that large payment/transaction companies can be created on top of daily payment use case apps.
China has seen companies evolve into multiple categories. I am told WeChat was made primarily on Didi (and the famous red-packet growth hack). But Didi created the daily use case of payment on WeChat, and one can argue, that it helped create the $50b+ notional company it is today. Meituan-Dianping is effectively Zomato+BookMyShow+BigBasket (Restaurant reviews, food delivery, Grocery Delivery, Movie ticket, Restaurant booking, etc) for China. They acquired Mobike and went into bike sharing. With the everyday payment use case in all these categories, they launched a cab sharing competitor. They could capture significant minority of the market in 3 months and give a good fight to Didi which was supposed to be the undisputed leader after acquiring Kuaidi Dache and merging with Uber China. Cab Sharing as a model has very strong city level network effects but very poor inter-city network effects. It was easy for Meituan-Dianping to get in on the backing of their customer base, and offline service partnerships.
So, Meituan-Dianping and WeChat have both proved that large platforms can be created on repeat payment use case. Hence, even if the unit economics of bike sharing, battery pack sharing companies, etc do not make sense today, its ok for investors.
Referral based models are working
Some business models are being valued because they have proven to have significantly low customer acquisition cost. Customer acquisition cost in very high in China (India:US:China is 1:10:20). Pinduoduo and Qutoutiao have created superior incentivised download model, and its working well. Traditionally, Indian and US entrepreneurs and investors have argued for incentivised acquisition and retention as poor strategy. Looks like it will change soon.
Alibaba has 400m customers while WeChat had 800m customers. Where are the other half purchasing? Why are they not buying online? Pinduoduo is the e-commerce for the lower half. The company started as a social selling company (group buying) but the product depth did not need to be very large because the discovery was not by search. So they could focus on small number of SKUs, integrate deeper into the supply chain, create better discovery for sellers of products for tier 2 market, and now competing with Taobao in a big way! Taobao has launched Taobao Tajia to complete with Pinduoduo. Timing was perfect for Pinduoduo as Taobao was trying to clean up its supplier base and poor quality / low price suppliers came to Pinduoduo. It started as a social e-commerce company, with primary acquisition channel being WeChat shares. But now 80% of revenue is by app. They have done their merchandising different, and hence attract a different type of customer base. Referral acquisition for Pinduoduo has resulted in lower CAC.
QuToutiao means “Fun Headlines”. This is different from Jinri Toutiao which means “Today’s headlines”. QuToutiao grew very fast by doing incentivised downloads and engagement. You make money for inviting people, using the app, and getting other people to use the app. The app makes more money than it pays to users, and grows very fast without spending money on customer acquisition. It seems that it does not make sense in India, because the money you would make by advertisement would be super low, and CAC is anyways very low.
Completely different POV on how ad market would evolve in India
Almost all investors and entrepreneurs in China have the POV on ad market that this is how it evolved in China 10 years back, and it will evolve the same way in India. I might be totally wrong here, but my understanding of the future in India is very different. I differ because of 3 reasons:
a) 10 years back, ad spend as a % of GDP in China was very high compared to that in India, and was increasing faster than India.
b) The share of ad spend on TV in China was decreasing from ~50% by 5% every year then, while in India its constant last couple of years and mildly increasing if you look with a 10 year lens. The digital advertising growth comes from decrease in share of print in India. I do not see TV share decreasing because of high penetration of TV, low price and high quality content that they have. In China, at the same time, because TV was regulated and not high quality, it was easier for higher quality content to shift to internet. Note that the common but mistaken knowledge is that China digital ad market is large because people did not consume regulated TV and print, and advertisers could not advertise. The subtle point I want to bring is that regulation led to low quality TV content, and hence easy disruption of TV, but before internet, China also had 50+ TV channels and families would spend 6+ hours a day on TV, and advertisers would pour 50% of their ad dollars on TV, only that share was decreasing very quickly. I would just look at one metric — share of TV in total ad market — to see the trend of how digital ad would grow because more ad share would lead to flywheel of more ads, more quality content, more users, and then more ads.
c) China ad growth was not captured by google and Facebook. It was much more fragmented. In India, 70% of digital ad spend goes to google and facebook. The third largest platform is hotstar which is less than 300 cr a year today.
I might be wrong, but in my mind, India ad market would not evolve as it did in China. In my mind, its easier for us to make money by subscription revenue for “differentiated” content in verticals where profit pools already exist (books, dating, education, health, etc). I hope that I am wrong about my current hypothesis 10 years from now, but I am not sure if not addressing the elephant in the room is the right idea. I repeat: There is no way one can be 100% sure about how future would evolve, and I would also be happy to evolve with new data points.
Culture rewards hard-work and humility. More data driven.
I loved the entrepreneurs and investors for their humility, and that they work really hard. I had people meeting me everyday from 8 am till midnight. Entrepreneurs with 5M+ DAU globally, and employees in companies with 100M+ DAU have this sense of purpose and curiosity, and humility and fire to work hard and go for a kill, that is super inspiring. There is no substitute to hard work, and I have no doubt that its one very big reason for success for them. They are very aggressive, because they all feel that they need to work hard, otherwise someone else will eat them up. That sense of insecurity breeds a very different culture. Almost all my meetings were personal intros with one person, but there were many meetings in which 5–7 people are bombarding me with questions trying to understand psyche of the Indian consumer. The humility and aggression — at the same time — was inspiring to me, and worth learning imho.
One other difference in approach is that they are much more data-driven than I think we are. Whenever I discuss a problem with a startup, the answer in most cases was deep tech driven approach than I was imagining. Worth learning from IMHO.