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You've been A V, C, in my heart for a long time.

I take a fence to that, and and I thank you.

Welcome to season and eight episode three of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and I am the cofounder and managing director of seattle based pioneered square labs and our venture fund.

psl ventures. And i'm David dresses and I am an Angel investor based in the .

co and we are your hosts.

Then you're a bio. There is little different this time. Congratulations, my man.

Thank you. Very long seattle, excited for the future of pacific northwest.

Very exact. Well, well deserved promotion. The managing director.

Well, thank you. And I mean, Frankly, it's most exciting just to have a new hundred million dollar early stage fund to invest in pacific northwest entrepreneurs who also might be acquired listeners. Well, today we are talking about a company that Frankly couldn't be further from the pacific northwest.

Well, maybe I could. I suppose if you're on the east coast of the united states, you might be literally halfway around the world. But today we dive into a chinese APP that started as a group on clone by a founder who had previously started a facebook clone and a twitter clone.

But this bike sharing yelp ask dash of china is much more than a clone. This A I power delivery company is also a right cheering company. It's a real world supermarket, a merchant analytics platform of in tech platform for those merchants who need loans, a travel booking APP for consumers and a way to buy cheap movie tickets. So what on earth is going .

on are saying it's like dora h and airbnb and square and booking 点 com and media and .

uber and in car go safeway。 No, this goes on and on. So make one is what people have dumped, a super APP. And if you're confused, well, so are we before we started the research. So over the course of this episode, we will dive into unpack, this curious company, how IT became china's third largest tech company behind only ten cent, and alibaba and IT was founded over a decade after each of those two companies spray crazy is 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 by do the classic third in the big three chinese test companies.

Yeah along side pino do as well. We covered last summer. This story is honestly amazing.

I mean, we'd heard with reference made one on the show holds the super grap. It's this really interesting chinese thing that is unlike anything in the west. This story is incredible, Frankly. I me, we ve told that before.

now dead. Well, that's why we have eight seasons. quired.

Well, are you when acquired? Slack member? If not, what have you been waiting for? 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 nuance and respectful discussion about the tech in investing. News of the day, you can join at acquire dot F M, slash, slack, if that sounds like your cup tee. Okay, listeners, now is a great time to tell you about long time friend of the show service now.

Yes, as you know, service now is the A I platform for business transformation, and they have some new news to share. Service now is introducing A I agents. So only the service now platform puts A I agents to work across every corner .

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Yeah, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service now dot com slash A I dash agents. Well, last year, to keep this short and sweet, if you are not acquired lp, you should totally become one. Aside from all the things we tell you about the L P D program on every, we just shipped a killer episode on the state of sas in twenty twenty one with emergence capital newest general partner jake saper, where he dove deep on their recent investment thesis deep collaboration if to say deep in a deeper voice.

deep color collaboration. It's also it's been a big month for um acquired guests and hosts in terms of promotions to general partner IT .

is that the wave is upon us. Well, we of course, explored the insane state of tech valuations right now in the frenzy market who are in with jake as well as deep collaboration. So tune in lp, s, or feel free to join at, acquire dota F, M, slash, lp.

If you are not way to see there, will David, before you take us in listeners. As always, this show is not investment advice, David, I may have investments in the companies we discuss on the show. And IT is for educational and entertained purposes only. That my is clAmber IT is your shouter right now. Take us and tell us everything I will.

I sure hope it's for both of those purposes. I mean, equal measures OK. Before we dive in, we have to say a big, big thank you to the tech poz china podcast.

They didn't excEllent job covering me on and its crazy story, I think among all english language reporting on china attack for me to specifically, they did a fantastic job, along with, as always, the evolving for the next billion podcast by G G V and burnley over a analyzation use all of their work in this podcast. They're all fantastic. definitely.

Go check them out if you follow china attack, and you definitely should be following china attack no matter where you live. Okay, so meet on we start history in facts back in february. We're early march now. So i'm about the same time of year of nineteen seventy nine in long yang, 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. Bella and chin, six hour drive, sort the north of their few, have a sense of chinese geography.

Are you like on google maps? yes. Okay, like this is this is a very descriptive explanation here.

Well, the more these episodes we do, the more I get to know the geography if we start. So in february nineteen seventy, in long yang, with the birth of a baby boy named one thing, and one is going to be our protagonist here, one of our protagonist to the story. And this was a pretty interesting time and family he was born into.

So so right at the beginning of dung h reform and opening in china that we talked about on the alibaba episode, a lot also talked about the tent, I said and sings, father was one of the very kind of first early generation of entrepreneurs in china after the reform and opening, you know, part of that let some people get rich first doctor in. And so his father owned a cement factory, so a long way from a tech entrepreneur, but he was a real t like small business entrepreneurs, china in the eighties and nineties. So shing goes up, you do, in the sort of new middle class, upper middle class family.

And in middle school, he gets interested in computers, like so many of us. And he convinced his parents to buy him a clone. This is going to be appropriate of an apple two. And then certainly there, after he commented them to upgrade to A P, C.

wait, there were apple two clothes.

Of course, there were. Its china. Um so I don't know that actually ran macos, but I was you know some like mack off of enabled to well are crazy, totally crazy.

But said then he upgrades to A P C. And he also and this is pretty unique. He convinces his parents to get him a modem. So this is in like the early nineties. The internet, you know, was barely a thing anywhere, but especially not in china, as we've talked about on previous episodes. So he starts going online and doing what early internet users in china did at the time was they would go on the kind of proto message systems, the balls import systems in china, which literally, like every future chinese tech billionaire, was hanging out on these B, B, I know, I like.

I swear to go. I've heard this story before.

It's like, I don't know, like cuppa cafe and palot or something. It's like literally all of them they're all hanging out on these BBS is pony mos there? Jack ma's there? Williams thing from daddy is there? Of course, Colin wang from pinda do is there.

You just named five of the ten most valuable chinese companies to companies.

So things there, he does very well in school. He ends up going to sing uh university in beijing, which is one of, if not the best university in china where he studies electrical engineering. So he's like very much on the path here.

He graduates in two thousand one, and he does what every do to fall, you know, future chinese internet billionaire would do. He goes to the U. S.

For grad school. Did you go to university of the?

yes. So this is where his path is a little bit.

And David, like this is what, fifteen minutes from the hospital where .

uni were both born, in minutes from I .

next door neighbor, something was a door to the hospital I was worn. It's crazy.

But I went to high school in willington, which is a the bigger city in in delaware. Let me tell you, delaware at this time, like you, I love IT. It's a very beautiful place.

But like, I was there going to high school at the same time. Machine was going to grad school at ud, you know, thirty minutes away. This was not an internet hot bit far from IT wasn't .

engineering hotbed, interestingly enough, with dupine and gore, with all the sort of materials and mechanical. But no, like IT actually pretty school down the road.

but not at this point. No, like literally nobody is thinking about starting tech companies in delivery in two thousand, one, two thousand and two, two thousand and three. I can guarantee that from first stand experience.

So I have to imagine that this was like pretty serious culture shock for him. So he stays a couple years. But then unlike many of the other personalities we just talked about, he ends up dropping out because he wants to get into tack in the internet.

And he thinks, you know, that this isn't the right place to do IT. And in two thousand, three, this website does show up among students on the university of our campus, a new kind of hot social networking, say, I think they actually rather ise some money from some pretty prominent venture capitalists on university campuses. And seeing is like this, is that I have found my calling. I'm going to go recreated in china. Of course, we're talking about friendster OK.

I say I thought facebook was started in .

two thousand and four. Yes.

yes IT was quick diversion down frensley IT. They're some affiliation with like red hot men and mark pink is like isn't a friendster story deep into people who went on to build phenomenally successful social products later.

I think so I always get for the french story story and the friend feed story mixed. That was bright tail. Yeah, that was retailer.

And that was like after facebook. That was like a two thousand six .

eight was an agreed right.

Yeah, yeah, yeah. Let's put a pin in this. I think we are friends to an episode, or least .

an p episode we get to, especially because they would go on the seed meet on. So he leaves delaware, he moves back to china. He goes back to beijing, and he hooks up with some of his former zha gassway tes and he starts, doo, doo, you apology if that's not the exact correct pronunciation .

yeah we we to say that for several things on this .

ABS o yeah several things we apologized. We're trying in our best literally translates as many friends. And the idea is he's gna be to just like he saw friends there kind of take hold IT the U.

D. campus. He's going to target college campy sis in china, build up the social networking site. Unfortunately, like friendster, IT doesn't really work. Is probably too early, too early for friendster in the us.

In china, the time you know, college students, yeah, they probably were using computers, but you know, your average person did not have access to A P. C. Mobile was still distantly on the horizon.

So he tries to pivot, do a, do a, you into a certain different kind of service still for students, for chinese students studying abroad to stay in touch with each other. That doesn't work there. But then in two thousand, five bad, as he said, facebook arrives on the scene.

And so he was, I got, okay, i've got at this time, and he realizes that maybe he made a mistake the first time, and that was that he didn't clone fenster exactly thorough enough. He's not gonna that mistake this time. So he and the team, they create a new shape they call IT shi, which literally means on campus. And they take facebook, they take facebook, the facebook 点 com， and they recreated to the exact pixel, like the same shade of blue, the same text, the same layout, the same everything, literally, the early versions of the site had the footer at the bottom of mark zc berg production.

No way. Like how do you clone that? Is there like they didn't know what that meant.

So they because people, you know, people in china, we're hearing about facebook. And so I think the idea was like.

it's like let's convince people this.

We're going to pretend to be facebook. fascinating. A is amazing.

But IT works. A lot of people start using IT. A lot of chinese students start kissing him. 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 IT themselves.

I feel watching a knock off of the social.

totally a knock off of the social division. This is so great. It's even Better by the twist that the story is gna take later on.

So they probably trying to raise money. They can't raise money a bit VC at the time. I like this is crazy. You literally say a mark of production at the bottom. I'm not invest in this.

Well, the chinese venture ecosystem is also dramatically under developed. I mean, you think sqa china only started in four and like that, I think the venture ecosystem before they got there certainly existed. But IT wasn't anything like what the U. S. Venture ecosystem looked in the dot?

no. And and I don't think IT was particularly risk seeking. We will get to this later. But yeah, Young paying actually was one of the koa china's first investment. And that wasn't until two thousand and six, which is the same time frame as this.

And David, you're drop the names we even gotten to yet my twin will eventually emerge with the Young, become may twenty, yum. Ping, and then drop the damping is cleaner and go just to make one. And that's how we get that.

But yes, you already are putting in an interesting point, that is the company that they ended up virgin with and buying later in a mega crazy merger. That'll be a huge point of this episode already existed by this point. And this guy is working on a facebook clone.

totally. So what they decide to do, they end up getting an offer from another entrepreneurs, china, named to joe chen, to buy the company. So they sell the company to him for two million dollars in october two thousand and six.

And so I obviously to buy IT didn't see the potential for the facebook. Sounds like something this could become. He's like, well, but the name though, you know facebook already at this point of starting to expand beyond colleges and you really wanted a bag.

You want to be, you know, the facebook for everything. And so this name of on campus, not so great. Let's change to a new one, know, a new one that incorporate everybody, literally.

Why don't we call everybody? Why don't we call IT red? red? So, yes, oh, this became, this became unbelievably rerun.

This is red run. Wow, that we're talking about. And David, what is red run? Run is the facebook of china. I pretty too many listeners know about run around its a public company, but yet they became enormously successful.

Literally, we're called the facebook of china, which is funny given that they started as a pixel pixel clone of the facebook of china. And they raised a bunch of money from softbank and masa back in two thousand and nine, two thousand. And then they went public on the new york exchange in twenty eleven, before facebook, they were the facebook IPO. Before facebook, they raised seven hundred and forty million dollars in the IPO at almost a six billion dollar market cap. And wang SHE created the whole thing, but he sold IT for two million dollars.

which you could justice ze 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 a hundred. And I was either sell IT or IT was gna die. And hey, he's still a kid, right? He gets two million dollars. great.

So what does he do? He says, guess I can do this all day. This is like two thousand and seven.

I just got to spin a wheel. And like rose days, pick whichever R. U. S. Internet company, web two that do you know? Hot company, i'm A, i'm going to recreate, let's go under the next one. So so he sold what would become in run at the end of two thousand and six. By the beginning of two thousand seven, he's back in the game with fun fo, which literally means have you eaten but is a kind of idiom that might like, hey, what's up in china? What do you think that is?

What is this the network if people are using to, uh, send, hey, I meeting my breakfast and my breakfast is it's twitter.

It's twitter. He created twitter again. It's just like this one is supposedly I didn't actually go like these screw ts are that but IT was, I think, even more insidious that you could like a 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.

IT also becomes a huge hit. So we're talking about two thousand and seven. Twenty launched in two thousand, six out of audio like middle to two thousand and six.

A fun foo gets two million users right off the bat. So that may have been more users than twitter. The point in time is unfortunately, though, for waning.

It's so successful that IT attracts the attention of the C C. P. Because it's like twitter, you can say whatever you want on there and people are spreading political decent on there.

So the C, C, P. Shuts IT down for a period of time. I I don't know that this is exactly, but I think I might have been like twelve.

eighteen months that IT was shut. It's honestly amazing that run get an i'm sure that the deal was struck there. So you get to exist as long as we get have some content moderation on there. But the fact that he was able to build and sell a successful social media company in china is a kind of .

amazing yeah actually is a good point. I didn't look into this, but maybe part of selling IT and joe getting involved was maybe around that, but I don't know that's speculating. So fun for gets shut down and then um IT does eventually reopen and I think it's still alive today.

But in the intervening era, seen a way and ten and you don't move into the microblogger space and you know he doesn't become a winner but you know okay Young things like well, second time I guess that was technically the third time he had friends there and he had facebook, he had twitter. That's in work. Okay, i'll go on to the next one.

And so now we're in a late two thousand and nine, early two thousand and ten. And there is a very particularly obvious U. S. Tech company, tech quotes company that makes sense to clone at this point in time. Am I thinking .

of the right company? There were the fastest ever company do a billion dollars in revenue.

I also thought that billion dollars in revenue same as you. I went like that up his fastest over or two, a billion dollars in valuation at the time, very different than revenue. We're talking about group an, of course, which took the world, took the U. S. By storm in the nine.

losing their heads in the tech community for this company.

Pledge completely. go. And gog, I mean, now it's kind of cute, right? Like company ties, we know companies that are valued a billion dollars before they feel to come out of stealth. But at the time I was to win, series ages were getting done at like a six million dollar post that the company, you know, a year old, would be worth of billion dollars.

Complete luna. And also people were, when you say tech company and quotes like group on took scores of salesmen pounding the place in order to go and convince local businesses to do this thing. Their turn rates were terrible because I was awful for the businesses and they would leave immediately. And so did 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 like IT IT was .

go go time pump at all in revenue. They probably did hit a billion in revenue pretty quickly because IT win one of those things where like you could pump capital inning get revenue, you just didn't get any profits out of IT or anything defensive ble. So in march twenty ten, wing and the to incorporate may one, uh, coming from may between beautiful and two, which means together, beautiful together.

And at this point, you know he's develops despite his a not yet you know hitting IT big with his cloning factory. He's developed quite a bit of a reputation in chinese tech entrepreneurs and venture capital circles. And the chinese B.

C. Industry has matured a lot by two thousand and nine, two thousand and ten. So right off the bat, there is twelve million dollars from sakai, china, when they launched in early twenty ten.

And then a year later, in the beginning of twenty eleven, they raise another fifty million dollars from alibaba. So this is pretty big. Again, these numbers seem quint today.

But at the time, like twelve million dollar, essentially seed from sqa in china, like that's huge. You entering this mega hot space, then you is fifty million books from malia. Aba, like this company is crushing IT.

and it'll talk about this more later. So I just wanted tease IT here a little bit. But you know, raising money from on alibaba tense, I guess we used to say I do, but he hasn't come up much in this episode or Frankly, in recent conversations.

There are a VC and a big tech company know there are a fan company and a VC all in one. And so they give you a tonic capital because they have a tonne capital and then they can also really help your business. I don't want to get too far ahead of my skis, but for anyone wondering alibaba, why are they leading the series? A that's how china works.

Very much of net works. So there is just one problem though, which is that for all of one ching, you know, capability vision, in a certain sense, really is vision. And knowing what you know to close on, how to make IT adapted for the chinese market, all the capital behind them, all the great resources, he's not the only one who has this idea that, hey, group hot might work in china too.

In fact, he's not even one of like a dozen or one of like fifty or .

one of one hundred. He is literally one of five thousand entrepreneurs in china who would have the same idea and start coupon companies.

You think we're exaggerating at this period is is like known in chinese text story as the the period of the could quote thousand group on war and thousand is underestimating the there were there were five thousand companies at one point twenty to thirty new group on clones getting started every single day in china, including group on itself, which did A J V with tens to enter china to china. You do what they do. A J, V, O.

Anybody can succeed here. Groupon called gpg. And this just turns in the lake. This becomes a bloodbath on the order that like is unbelieving people in the U.

S, you know in western markets think I meant food delivery in the U. S. That was a bloodbath. There were like four different players that were going this china .

scales all we need to say it's like, oh, and that previous a company you're talking about, it's like, oh, well, they had only two million users. Like everything in china, scale is so much bigger and faster and more competitive and you know more greedy. And I mean, the ninety nine and six thing is real. Like if you hit on to something, you Better be work in ninety nine hours a week, six days a week or else someone else is going to with your idea.

yeah, well, definitely somebody else is going to. So the other thing you like you said that the nature of the group on business is there's not really any tech involved like you need a website basically. But the business is local sales people going to merchants, restaurants, cariole bars, massage, piller to at the lake and walking in the door and signing them up to get on group on and then running marketing stunt in local cities, getting users to sign up.

And every city is just as hard to sign up as the previous city. Like you don't really have scale advantages by being already in fifty markets. It's just like, well, no one's in this market yet, so it's war to in that market.

Yeah no. Unlike many of the other thousands of competitors washing figures out in this process, you knew people were thinking up until this point. You got ta remember like the technology adoption curve, the computing adoption curve in china looked very different than the west.

You know, most users in china never experiences the internet on pcs. They just went right to mobile, right? And at this point time, even that was only just starting to happen.

So the people who did use the internet in china were in the tear. One coastal cities in beijing, in ang hai, in hangzhou, you know, the big in sanja, in hang khan, people that had access to computers. So most of the startups were focused on those cities.

But one, shing realized hay, the tear. Two, the tear, three, the smaller cities, people start to get mobile phones, or they have access to the internet in internet cafes. And this product, the group on product, is actually a really good fit for their cities.

Um so he and the company expanded many, many more cities than a lot of their competitors. And that was one of the key things that help. Then I won't say win because nobody won here, but serve become .

one of the few remaining last standing.

become one of the few remaining last in companies and know to go a particularly alibaba capital. And my hind them helps a lot. But by the end of twenty eleven, so this whole cycle plays out in like one year, maybe eighteen months.

By the end of twenty eleven, there are just a very, very, very small number of these companies left. There's made on there's the Operations of the B, A, T themselves, which they have small Operations but mostly theyve invested in companies. And then there is a very, very different company that is still left standing called the amping that we reflect.

Yeah which is fascinating for them watching you know this thousand group on war come up around them. They're not in that space really. They had a pivoted to that space. Is so fascinating thinking about if you are running the the unp business, like what do you do with all that mean it's happening around you in a very nearly jacana y.

It's what i'll tell the story now. I mean, I could maybe argue they shouldn't gotten into this at all because they had a great, great business. But the net result of them getting into IT is that they then become made paying.

And now there the fourth follow to dinner at company in china. okay. So unlike me to and waning who they were just out based about copy and it's like that was the thing no yeah we copy. We do Better like that video damping, which literally means reviews in chinese was actually like a genuine innovator.

I don't know if they were unique among chinese tech companies in this era, but they were certainly special and where and are an incredible internet company, the people sort of direction timely at the time we call damping the yelp for china. But a IT wasn't is way more than help. N B, yp.

Was the D. M. Ping for the U. S, because D. M. Pank was founded in two thousand and three, and yp was founded in two thousand and five.

totally. I was crazy realizing that the research, and like, help for china, this company started. Like when I was entering high school.

you, back when wang ching was still at the university of delor who is and um the amp was founded so the founder is a super, super sharp guy named tow jung and tell was. H so he was on uh the evolving for the next billion, then called nine six G T V pad cast and and talked about his journey, great episode willington ed in the show notes. So he had been a consultant in the U S.

And then a technology consulting and then went warton and did his N B, A, A. warton. And he had been planning, he were actually waited in two thousand and thirty. And he had been planning kind like all the you know future internet billionaire at the time, that he was going to go back to china after doing his NBA warton and he would pick A U S.

Tech business bother to clone and you to raise money and run that playbook then but unlike seeing who um IT was very confident in his ability, shall we say tell is he kind licked around at the landscape in two thousand and three years. Like I don't know all the good ideas have already been closed already. Like I don't know why I would be able do something Better that are you being done in the U.

S. But I do kind of want to start a company. You know, we've had all this great experience in the us.

And know one thing that I really like doing, what being A N B A student in philopena, not far from the university of delivery, was I would use. This is a cat guide when I had got got a restaurant in in philly. I wonder if there's some innovation to be done there about bringing basically bringing the gat online.

And you know, the thing is, in china, restaurants are kind of different and there is nothing like this a gat guide in print or online. And that actually would be way more useful. Because in china, you can order pretty much anything at any restaurant like you really, really wanna know what the good stuff is rest on.

Otherwise you might order. They might have four, five fantastic dishes that they do Better than anywhere else. But when you get the menu, it's literally a chinese menu like it's like a book.

You could order anything you want. You don't really know I need kind of a guide told these restaurants is so, okay. Well, maybe this could be useful, or code IT up.

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 built the website himself. Wow.

I didn't realize he was a like technical founder.

yeah. P, I believe he had done technology consulting before. worn. The story is he built themselves so like super small scale, small ambition, like he wants to build a company, but he's not thinking, like watching here. He takes off like wildfire.

And in contrast to the group on business model, online reviews for restaurants, in a particular for dishes within restaurants, is actually amazing internet native business because of the asset that you build. IT has an unbelievable mote around IT. 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 do every restaurant and every dish, especially when those restaurants have a chinese menu with a zelia options on them, like this is a peer sort of internet native data play yeah so .

he doesn't do end up higher ing and building a company around this. We talked into an a sec, but they come up with a bunch of key innovations. So yet has never been started yet and they have you.

So it's radix and kind of a guide to restaurants. But like you said, but it's not just the restaurant is the dishes at each restaurant that you can really rate. You can also rate and see categories, ratings.

Free restaurant like the food, that decor, the service you know, you want to know like you yeah, the thing that sucks about yell is like, this is a four star restaurant. Every restaurant is a four star restaurant. Why is IT four star is is that like the food is really good, but the service sucks?

Yeah, they've tried to get into this. But yeah, I think it's safe to say yet, has just not executed well as public company where in the last five to ten years has just been disappointing.

totally very disappointing. Then their stuff like you know on you'll be see the dollar science even they are not all U S. Review platforms as oh, this is a three out of four dollar sign restaurant.

Well, what does that mean? Like, you know, so on don pain, you see the actual average Price of checks of bills at restaurants. So you can be like, oh yeah, I know exactly what this Price is. IT leads to much, much, much Better discovery that they focus on photos and even short video, like way before helper google maps. But he realized that .

was important. Yeah, I was reading that. Don pain 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 created content and presenting that a thoughtful, beautiful way to the user.

Yeah I mean, this whole I the integram ming of food. And start with instagram. The amp in no way is instagram, but like that kind of or IT start like, oh, i'm going to take a really nice picture of this meal that I am about the that a restaurant and i'm onna put IT in my review on the ping.

They also go much deeper into the value change. This I think there was one of the things that yp wiped on more than anything else was on damping. You see the reviews, but you can also book a reservation at a restaurant.

You can order ahead what you wanted eat at the restaurant, and you can get discount t at the restaurant. And they do go in a small way into delivery from the restaurant. Never made any sense to me why all those are separate businesses in the U.

S. You got yell, you could open table, a grab hub, all the elements were there. But is such a bad experience for the consumer to do that across three separate apps.

So jumping takes off, spread s like, well, fire in shanghai, and then bleeds out to other kind of tear. One coast olid cities, like we said, IT becomes one of the koa, china's very first investments. There is one point five million dollars from neil in two thousand six.

Do you know what a koa china's first fun size was?

I don't know. I can't remember if doug said on our episode.

My sense is that there was still a large fund. This million and a half. Our check, I do not think was like a big bet.

No, but this not a capital intensive business. And then do you know who leads their series?

B is IT google.

IT is google? Yes, tech giant strategic investor in china, not by you, not alibaba, not tense. And its google .

and google who can do business in china at this point. So at least I don't think they were.

I think this was right before the guy kicked .

out of china. So how did this happen? Because I remember seeing this and I sort of just like accepted at face value cause like yeah google G V or google ital capital g has been investors in these companies. But like, right, this was what two thousand, five.

six, somewhere two, seven. What was going on? I don't know. I don't know exactly how I came to be other than, you know the nature and dynamics of that. The Young pain business was very monthly.

Google like they sell advertising much in the same way that google sells advertising. IT was an educational high touch, very high margin experience. You know they didn't have feet on the street at local stores, all the assets eos IT was IT was an internet business. He was great.

Um IT was google investing in other chinese companies at this point?

Not that I know of. I don't know how the relationship came about maybe perhaps through scope because course scope was along with were one of the T V C in google and on the board perhaps that how came about. So dumping goes along, doing great, build a wonderful high margin internet business.

And then twenty eleven hits the thousand group on war era. And so then all of a sudden, you know, they've had the food and restaurant market in china, at least in year one, cities, internet food in restaurant market, completely to themselves with this wonderful business. That market do exist in tier two and three cities.

And now you've got five thousand competitors, including this crazy Young shin guy, backed by alibaba, also backed by zoia, go and around with these foot soldiers. That's what they call them. They like armies, go into these restaurants in being A K sign up for the group plans.

So crazy is a terrible, terrible business model.

terrible business model. So the amping trying, like, gosh, what are we gonna do? How are we gonna compete with this? They know they realized that this is a completely different company, completely different D N.

A. Much worse business to get into. Not to mention they're not even in the two or two and two or three cities. But they kind of decided, like, well, crap, we've got to play the game on the field.

right? Is this the wave? Is this the technology shift? And interestingly, IT wasn't a technology shift. IT was like a societal behavior shift.

The technology shift was to mobile at this point, which is crazy to think about for the first six, seven years of dunn paying six years people. We're just using IT on pcs. Hold in mobile wasn't really a thing yet or at least not in the smart phone way that we know IT today. But yeah, what they chose to sort of react to was who there is a big business model transformation going on that we need to be a part of and other .

companies are going to steal our customers. And and I think the the really strategic insight that they have, which cause they do despite having much less capitalization and different business model, it's them and made to on at the end of this that I left standing.

The strategic insight they have is that because we have this other know for a lack of a Better term, you all like business are dyn pg business, except is yet deon pg like business, the inferior clone. We have more a touch points with consumers so we can, in theory, acquire consumers Better. They're coming in through multiple front doors.

We'll have to go spend and subsidies to get them in through the front door for a group on product, either for new customers in new cities, but for our existing customers that are ready using us. You know, we ve got a free real state in front of us every time they want to go. They're going on the amping. So OK great theyve got an advantage there. They also have a in the medium till long term capital advantage in that the don pink business is a gay cash flow dynamic, you know high margin business, which can be used to fund in .

a non of way where everyone else is just taken on as much capital they possibly .

can to actly. And then finally, at this point, I don't know how much this was the case. Certainly, IT is the case today. They have this huge data asset, right? Like they know what consumers are like because literally the customer is tell them.

And then if you've been in the open user for a long time, they know which restaurants, which karaoke bar is, which method father, which you know experiences you like. And then for new users that you can do, collaborate, filter and A I and what not in like predict pretty well what people going to like. That's a huge advantage of this business.

yeah. 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. Yep, P, P. So by the end of the dozen group and war, it's made one on its the Young left, but they're kind of sitting there looking at each other.

Do you know both of them obviously very part in their own ways and they are like, huh this whole group buying business, you know, we've won. We've gone to scale. Our revenue numbers are much bigger than they used to be.

But like we're not getting any technology leveraged out of this business. Literally, IT is a discount business. We add another hundred million dollars in revenue.

Very little of that is flowing to our bottom law. And then our cost structure margins are not improving. We need every new restaurant we sign up. We need more people in R C. Els army.

Every new customer, literally, the whole businesses were subsidizing customer experiences to actually says publicly at this point that he predicts, even at the end of this, that he predicts the entire group rank space is just gonna die, that there's no future in IT. And group on had gone public comics doing this research, this product, so many memories. Memorial group on went public. And that was like, literally the high watermark. They never traded above their IPO Price.

I remember when they fired the CEO, when they, when I made in one, you know, left to go spend more time with his family. Just kidding, the board fired me. That moment sticks in time for me as a pivotal moment in tech history.

Such a character. And so like, not his foot too. He was just a bad business.

So their market cap was down ninety percent from I P O Price within like eight to ten months. wow. So that's the moment that we're sitting in here. And this is now late twenty twelve of and there is this interesting thing going on.

I have thought before doing the research that the whole food delivery online to offline is the tany version of talking about this originated in china and that IT was door dah and iberis and postmasters sort of copy IT here in the us. Basically emerged at the same time in the place. So right around the same time as tony and standing in the andie and crew and even at stanford were starting to think about food delivery. And door dash was the same time that made one and the on pure kind look around and me like um we have all .

these restaurant customers, we have all these people who visit our properties, who are consumers, is there's something Better we can do here.

Is there's something Better we can do here. And D, D, of course, existed at this point in china and uber in the U. S.

And so you have this whole new in of the flag burned in my memory of like the Green wine now of dora ash, of like, hey, it's about the labor supply that has mobile phones that we can now bring on these geegee economy labors and direct them, incorporate them in a way that was completely impossible before. Well, this is existing in china too. Now how with right sharing and di. So they both go hard into basically converting this failed group buying business into a food delivery business.

And so did the on being still have sort of a successful yelp business going on at this point that .

is continued from two thousand and three all the way through twenty twenty one in the future. And it's arguably one of, if not the most important link pin of the whole combined company.

Yeah, it's faster because as you just repainted there, you know it's IT. Was tony and company at door ash inking about this? If you were wind further back, of course you have grab hub and seamless and I just eat in the U K. Exist already at this point.

And there was a player in china that will get two in a minute.

Oh, interesting. But of course, they didn't actually have the delivery fleet themselves. 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.

It's also worth noting you in the U. S. How quickly we forget that ubs totally stole dordick is business model dordick came up with something.

Uberti was doing something completely different. And they were like, oh, shoot that and that's actually even Better for us given the fact that we already have all these drivers. So all this to say, I think you are totally right to say the discovery sort of happens simultaneously with dash made and don ping. But IT totally is worth noting that, like food delivery wasn't new, IT was organizing food delivery in this way that was new.

And you hit on one really important thing, and then another one that is a totally the same dynamic with these companies. Well, the one that's most the same is, you know, tony teams core inside with door dash. One of the court incites was suburbs like, hey, you might think that this food delivery would only work in a dense city like new york city, like golf.

D was talking about on the special opposite we do with them. But no, actually, there's huge there's even more demand for this product in suburbs where they're not great food options. And logistically, it's easier too because you can park and you can move around the easier as a career .

and what so IT was that the case also in china?

IT was, so, of course, food delivery works great in the tear one dense cities. But remember, because of this group, buying crates made one. And the don pain had expanded out to hundreds of cities across all of china.

And similarly, you know, feel like in shanghai and beijing and the like. But well, nowadays use me to and it's great for food delivery. But even before that, you could get anything you wanted, any time you wanted with minimal effort. If you live in IT to or two or two or three city and you're just getting a mobile phone for the first time, you are not having that experience.

You don't even have e commerce because alibaba doesn't serve you pindi a do doesn't exist. Yeah exactly .

exactly. So it's not quite suburbs versus urban versus cities in china's more tier one versus lower tier cities. But the other dynamic, the driver, so unlike no dora, had to build up their driver, their career staff from scratch, both made to on the pink, but especially made they just recruit this massive army of foot soldiers to go due door to door group on sales to merchants is not that hard to give those folks a cheap android phone and a scooter and converted in the Carriers and smart. And not only that, they had the whole management organization structure built out as well around that.

So where where the employees is there the same sort of like concern over the delineation in china that there is in the us?

That's a good question. I don't know. I think IT is different, but IT doesn't seem to be as much of a big deal.

The U. S. IT was like the biggest issue was, well, yeah sure mobile here. But they also can't be full time employees because that won't work into our cost structure.

They have to be only paid for the time that, you know the phone tells them. Okay, now in order and and try, I do wonder, boy, we should do this. Feels like a good sort of L P topic to dive into worker classification in china. Understand that Better?

Yeah, I have no idea that would be fascinating to understand him Better. So you may have twenty fourteen meet one goes out, lunching, goes out and raises three hundred million dollars from ababa zoia has existing investors and general atlantic new investor, and rolls out this food delivery thing from the get go at a hundred cities across china.

So let's review investors here. Oque k, so mates one has a koa china. They have alibaba a and they got alibaba to double down in a big way and they got generally linked .

and jumping has still, at this point, fairly little capital because they're been living off the cash flow from the gene product. They around ten years from also scored china and google. But google is tapped out at this point. They're not going to invest .

in any more in china, but not tencent or alibaba or by due like they're uninvolved to this point.

to this point. So tencent being the brilliant folks they are and seeing everything going on in the country through their ownership and Operation of we chat, which you will talk about more in a minute. They see the dynamic too, and they approach the Young ping and they invest and disclosed amount indian pain, but must have been a very large amount of capital into the company in early twenty 4。

So right around same time. So now we get ten cent backing, paying quest tencin. Alibaba are brutal rivals. And by do but know or about, you will get to them a minute. So they dump all this money into damping.

But now and amping, you know, they know they see they're building up their own food delivery Operations, but they they're not moving as fast as me to unenvying. They still have the internet company DNA, not the you know want shing DNA. So at ten cents urging, jumping in goes out and leads a eighty million dollar strategic investment in another company in the space, in fact, in the O G company, in the food delivery space in china, a company called ulama.

Uh which I I think i'm saying that rape IT is spelt E L E D M E. And this going to become a very important player in the story. But I think it's pronounced will them up. And what they do is basically create what meeting is today. So they integrate the willam delivery career network into the dumping experience.

So you're in the dumpling out and you know you're looking at reviews, you're choosing where to go to eat, and you've got right there integrated food delivery from these restaurants that you can do to see what this is a great you might experience when you go on out e, you'll see the calls action in the APP to go due. Will my food delivering next time instead going to eat? It's a pretty powerful combination.

So wait, who let the investment .

at all they did? So there is still .

a private company is so jumping raised money from cent. tencent. And they had obviously like cash flows that generate a big proof on the baLance sheet, and they invested some eighty million of that into llama.

So now it's unclear how much that was. I think that was probably a joint. And knowing a little bit about tencent, they Operate very, collaborate vely like a joint.

Hey, you know, ten temporarily thought this was a good idea. Talent jamin ne, well, yes, this is a good idea. This would be great way to learn. We can partner you. Maybe this leads to an acquisition, will also be building this up on our own.

okay. So we're like totally in tencent dumping line here while .

alibaba is doubling down on me twice. So we're set in this up that this is gonna a it's like a two on one fight of jumping and illaha together, united against me. One clever, very clever.

So A A little bit of brief history on on them. They are actually kinds like the real dirt ash story of china. So IT was started in a college dorm room by college students in shanghai in two thousand eight. So like way back.

And so that's what two two and a half years or so before h mate one is founded.

yes. So before the whole garbing crazy, like they were a way too early to the space. And a the story is that they were like big PC gamers in college, the founders, and they didn't want to leave their dorm rooms to go get food.

And so they started to food delivery presses like doty back at David. They are running around. Caf is delivering food themselves. The CEO, uh, mark yang, he actually goes to work as a delivery career for restaurants to do with themselves just like tony one and worked for like fedex instead of like there are .

so many of these chinese stories that are like I feel like i'm listening to an old version like an old episode that we did I know uh so they boot .

staff for a couple of years ago. They're too early to the space there. Raise a little bit of money from g sr number matrix china in early twenty and thirteen, there was a very present investment kind of rate at the rate time.

And then later in two and thirteen, once IT starts becoming clear that, hey, grouping kino sox, this online, offline food delivery thing is the next wave. Olam raises a big new round, a series c from a new financial investor who has a very well honed and educated point of view, shall we say, on the space. Who do you think that investor has been?

Is this before the ten cent don paying round? Or after before before?

O that tends not alibaba financial investor.

So that eighty that came in from them was after this. So this is the round immediately proceeding. Yep, pure financial investor.

They really see where this space is going.

Um they see where the space is going. So someone else in food delivery, uh who that pig on, I don't know.

score 也 在。 How ganger is that ankola？ They are in may 团。

They're in the ana s everywhere.

Show you dog. Oh, that's cate legend. I thought .

I was like, it's too easy. It's going to be like a naser or like a fidelity years.

This is just another one of like the china ecosystem is so different that could never happen in the us. Could you imagine .

being an .

uber and lift yeah and postmaster's door lake.

right? right? That's crazy.

totally crazy. So quickly after that, then the don ping slash tens and eighty million dollar round happens in llama. And then shortly after that, tencent is like, oh yeah, this thing is working well.

Back up the truck about another three hundred and fifty million hours from us. Ah so this is where things get not and at this point, jumping ing, I believe, is still running their own food delivery Operations in some cities. But like this strategic way is behind llama at this point.

we should say to listeners worth speaking in dollars here, because that's the best way that, David, I can compare apples to apples to everything going on to the U. S. And of course, previous episodes too. But of course, this is all actually happening in RMB.

Yes, yes, of course. So this is where things just going like completely off the rails. So mato on careers and illaha the paying careers literally start fighting in the streets like there's blood in the streets. So there are viral videos that start going around to china. The government gets involved to like broken peace here, like videos of like gangs getting going to brows on the streets and like turfs over restaurants and delivery routes.

What incentives did they possibly have? It's like they have huge upside in the company. Like why are you fighting for your tribe?

I think that culture little bit, the management structure and culture from the group back is is a very military tic culture. So if you go on my website now, go on there, english language, best relations. They have video and amazing video kind of showing the Operations of the company and the super APP and everything you can do with IT.

But when they show the career in network, it's like military style, liked lines and rose of Carriers with like a combined er out in front giving the orders crazy. It's interesting. It's not quite like the independent digg lavers in the U S.

No, that doesn't sound like IT. So that feels to me like there are their employees and they found some way to make that work.

yeah. So there are four, twenty, fourteen and twenty and fifteen. The two we know camps are sort of neck and neck, by the way.

Also, we should have said this market is exploding. So the food delivery market in china is about four times bigger than the food delivery market in north america. And IT is growing at a thirty percent annual tiger, the whole market.

So both of these two camps are kind of neck neck and fourteen and fifteen, the each other about thirty percent market share. And then in August twenty fifty, in ulama raises another six hundred and thirty million dollars. Many had raised in january of that year another seven hundred million dollars, silly, huge, huge, huge amounts capital pouring in yeah and that illumina comes in August of twenty fifteen.

And that's right before the shoe drops on october eighth twenty fifteen, the announcement of the center. I and I remember reading about this when I happened here in the U S. And thinking like, oh, well, that's interesting. But now knowing all the context behind this, may and the amping announced that they're merging. So you've got these two rivals, but it's almost like a proxy war with Young ping and made on.

And you say proxy work is is between ten cent alia .

a betwen ten and and alibaba, but it's also between and on the streets literally on the streets, it's between min and ellam. And then in terms of capital, it's between ten and and alibaba with sqa also on both sides must go on all three sides .

here we D A diagram.

know I know oh my gosh, uh words in china and then made emerging so poor a their whole strategic advantage was the product integration with the on ping. And they just raise their new investors. They just rise six hundred and thirty million dollars of capital two months later, their main strategic partner, their product advantage, not only goes away, go 所谓 to their direct competitor of of brutal wow。

So without spoiling IT for the audience, I only know of olawa because of how they come into play later in the story. And knowing all of this history about them, that they were actually a tencent investment, that they were actually a the Young ping investment in partner, is going to be astonishing.

given where they end up in tour, what's about to happen? So supposedly, once the main in merger happens, tencent and skua supposedly go to William a and say, remember their investors in my they like, hey, look, ratings on the wall here. I think what makes want to to sell your assets this new you do combined company? Clearly they're gonna the winner here. Like let's all just console, you'll get some small piece of this will all be happy. And of course, then and and go, you can be very happy .

if this happens, right? Because now they're the largest shareholders in what is the company that .

just has a room to .

run that no longer is competing .

to he's a turtle credit mark, the C O. bus. Like, screw you guys. No way am I gonna do that. Unfortunately, he has one strategic option left on the table is IT.

the party who just sold their entire stake in .

met one deed merger. It's alibaba.

So walk us through this for folks listening. One thing that happened at there as a result of this alibaba backed met one and tencent backed don pain merging, is that in a part of that merger where I think met one was slightly the larger shareholder and I was kind of a merger equals, but made one out a little bit, alibaba decides, knows the time to get out. And not only to decide, knows the time to get out, they back the like, scrappy, smaller party, who we all thought was kind of screw in this whole thing.

not necessarily smaller, but definitely they were a strategic .

mega disadvantage. Now, yeah, how does alibi try to sell their stake in the combined? Mt, one Young people.

so I think this is my interpretation here. I think what happens? Alia a, must have been so pissed at this, because member alibaba is like, you know, they're like the grocery put, like the amazon, you know, and like e commerce.

Is there thing? How about teall like that? Is their home turf and financial services around that? Where is ten? And you know.

despite .

red, while their bitter rivals china co. Exists, you know in separate sphere here. But now you've got this hyper strategic a new market developing where the each of these investments, but it's encourage much more on alibaba space than IT is on tencent space, like tencent getting into local commerce.

Food delivery is just purely additive to them. It's offence. Or as for alibaba, this is defensive because it's not a big leap to think, oh, I could deliver food. I could live like e commerce stuff too.

It's like if you're an e commerce player, this emerging world of online to offline or as people sort of referred to IT, that the sort of amazon of services this locals. So it's kind sort of like the amazon prime that is going to encroach someday on. Because if you think about the U S, like right now, we have a difference between amazon and amazon prime.

At some point, everything will just be two hours. And so you have to imagine that if you're alibaba, you're like, wow, this fleet of people delivering stuff super fast in every city in china. That is where we need to be .

at some point yeah and now of intensity we can hold on. We can stay involved in meet on don paying because tencent are bitter enemy is now right here alongside us as fellow twenty percent shareholder in this company, learning everything and just getting all this upside while where you know this is like strategically very threatening to.

And so why when you try in box tenson out? Like my sense here is like, look like aba, that right on the larger surviving company of the two, I mean, of the two IT was the one pink that merged into you meet one. And so if i'm alive, A M, I get the hell here. Tencent.

yeah, well, and what was the cole? And .

there's A.

I completely agree. I would love to have been to fly on the water. Those converted someone.

I mean, the dollar sign got to the place where alibaba was down. The seller stick you that mean that just had to be what happened? yeah.

So alibaba sells their entire stake in meta damping for nine hundred million dollars and back from all a turns around. And you know, enemy of my enemy is now my friend. Alibaba invest one in a quarter billion dollars into llama for a twenty five percent stake right off the bat.

And then they don't stop in twenty seventeen, they put another billion dollars into o lama. So by you had a poor video, did have the number three player in the space, they had homegrown, built up a food delivery business and had like and like fifteen percent ish market share, fifteen twenty percent market chair, so less than all amman, and made twenty ping. But they bought IT, consoled at that in dilema. And then in April twenty eighteen, aliva buys the rest of the company does a wholesale acquisition of olam for nine and a half billion dollars, which wasn't until that point and I think may still be the largest dollar size china tech acquisition in history. Wow.

crazy are all in this sort of same market like we haven't even gotten all the crazy stuff that made one does these days. But this is purely the like food delivery and restaurant recommendations in reviews and you know kind of dead dish group on corner of the business yeah and at this point.

alibaba is pumped more than ten billion dollars into this business because they think they .

bought loom off out right for nine point something.

billion out for nine point five, and they had invested .

a billion five.

And plus the money they had invested into into me to back in the day, plus they had their own internal Operations that they are spinning up to yeah.

it's I want to talk for a minute about the attractiveness of the opportunity to be the winner in this space. And there's two quotes that I wanna bring up from to jung that he had on the great next billion podcast by G. G.

V. capital. The first one is, if you have three or even two players in the market like this, nobody's gonna any money. The second one is even more damming, which is, in this kind of business, the only rational way is to merge, unless you think you can kill the other guy. And he had sort of described that Young paying had been talking with met one about merging for two years. You can sort of understand why when you flash forward today and look at how freaking profitable the combined company has gotten, but at this time, no one's making any money, is just a nigh fight of investors pouring money in, much like dadon ubs fighting for market share, subsidizing customers. IT is A A complete race to the bottom.

yeah. And what's so wild about these betrayals? Double crosses, triple crosses and the end state of alibaba and ten sipping on separate sides here is like there is never going to be a merger.

Merger between me to and I and Williams like IT is now a fight to the death, unfortunately for alibaba. And I think I mean, there's a lot of stuff going on around commerce in china. Alibaba with pinda do J, D and everything.

We've talked about previous episodes. Your alibaba share race has not done well over the past couple years, especially comparison the tencent and others and and made one and and p do I do? This is a big reason.

They are losing big time in this space to make one. So twenty sixteen, when willam a bought byte s businesses, that they then became larger than made on the Young ing. So they had the upper hand.

Twenty seventeen, though they lose my time girls hugely. The combined company ulaan alibaba lose majority market share. And then by twenty eighteen, so we're like two years in here, may I now has sixty percent market here olam as down to thirty eight percent. And then by twenty twenty minutes, just further pulling ahead there, sixty seven percent market chair, we will must down to thirty percent.

So this is made one don, paying with that line of unless you think you can .

kill the other guy, which they're doing part strategic, like consumers have this reason to come to the APP and engage with IT much more deeply than you would if you're just ordering food delivery. So this is where, you know, the whole super APP sided the thing really comes in.

I mean, if you think about IT makes so much sense, like the amount of time that I waste ed flipping back and forth between I look at stuff on Jordan, I like, that looks good, can't really trust the reviews. So I flip over the yelp, which is my like source of truth for reviews. And I like how many starts they have on yelp.

And you can really .

trust those either. But totally, i'm three and a half years, so zero stars, okay, skip. But like I am bounding back in fourth between the two IT makes so much sense for that to be .

one platform totally. It's such a horrible product experiences. Same deal. I'm sure everybody has the sleep.

Yeah, I want to order something, but I want to try something new that's not in my usual list of restaurants. I have no freaking clue. You know, I look on door. I look on you.

I can figure out right? And dash iberis have every incentive to push me to click by because they participate. The transaction helps.

Incentives are actually a one here because they're just an advertising base business. They don't care if I actually dined at that restaurant. They are more neutral in this party.

So I know you can sort of trust their reviews more. That's why I always feel like i'm looking at these reviews. And you know what s national I like ah .

I don't know yeah totally. And based on you know i've talked to people in the past that but the companies and I like guys I need reviews. Why don't you give me reviews? Just give me reviews in the product and like, well, it's complicated because you know the restaurants are partners and like you like you yeah.

i'm curious how that one gets around IT or how many one has has sort of dealt with that?

Well, I think it's because the dyn paying assets, you know there's millions of reviews in the system and very detailed granular down to the dish level that are just already built in, in they're there. It's not like the creating new ones, but IT already exists. So wang ching and made on he's not satisfied with just that.

He's like i'm an impressed the advances here. I've got people coming to my APP. What else can I do with them in the APP to sort to increase the cross sell opportunity, increase my customer acquisition front doors, increase the value, and customers are getting out of using my APP. They get into travel crazy to the hotels.

You know, they know about the .

travel industry because shen started sea .

trip c trip yp, exactly which was the dominant and a primarily be to be focused but the dominant player in chinese travel .

yeah sea trip was the booking 点 com of china like they were dominant like all travel hotels flights domestic in china you're doing on sea .

trip and still huge it's still huge.

but they only have twenty percent market share now. And meta has forty six percent market year of travel in china.

Unbelievable what which they launched .

five years ago or less.

It's as if like an expedia launched four or five years ago and then boom has close to third of the market.

yes. So travel is huge for them and important has a much Better margin structure than food delivery. So they're getting a huge portion of the contribution margin.

The company is coming from the travel business, which is getting traffic from the food delivery business and the reviews business. You can start to see the fly will go in here. They get into local services.

So you know, this is very adjacent to restaurants, into the other reviews in the platform, massages, karoui, local events, experiences, ticketing. Just book all that right on the APP. They get into home services.

You want your drag cleaning done. You want your laundry done, you want your house cleaning stuff that you would use like dum tag for in the U. S. great. Bring IT all in the APP.

It's so fascinating.

They get into transportation. They start competing with dd. And then I think they partners with dd later.

They get out of the right turn game directly. They buy more bike, so they you can book bikes on the APP. Uh, they get into groceries. So like instinctive type business, you want girls ies delivered great. You want to shop in person in a girls y store and pick out your items, create you on right there in the girls y stay on mental and APP and pay and walk out the store and have somebody a career come and bring him and deliver them to you.

It's so fascinating because if you would have told me before starting the research on this company, the chinese super APP, I would have been like, oh, we chat, but we had, you know, is kind of like the APP store launcher or like the APP p launch, like it's your home screen in a way, where is I go? Here is a bunch of different apps that interest, you know, that that I can get to from my chat experience agreement with my chat. This one's like an APP that enables you to do anything in the physical world.

Yeah, well, it's funny, say that have been because both of these things are true. A lot of people use the mone APP that you can download from whatever APP store you're using a whatever phone you're on, just as many of not more people use the meet on many program on we to at.

So this is my ten is just so dominant like a they invest in the best companies on the platform because they see the users on which at they did this with indu, they've done me. They put their hand on the scale, you know either in in light touch ways, but many programs on we chat is IT a full fledge f experience right there within we chat so tense. And the witch at ecosystem is getting all the benefits out of this.

So like tencent is a major e commerce player in china without having to build any their own commerce themselves. And there's just like IT would be an exaggeration to say they're eating alibaba is lunch at this point. But between pinda dio and made 1， they've got these huge monster players that they're invested in and are being used through their ecosystem on which an alibaba is boxed out.

Yeah, it's crazy. From a capital allocators perspective, tencent is like make sure half away like they don't care about owning these companies. They don't want to control them.

As warn said in his most recent letter to shareholders, they're indifferent to whether they control them or not. But you know, they look at great businesses and say we want to own some of that. So they are like berkshire in that way. They're like facebook in that they own the most dominant messaging and and social network APP. So they are sort of like there are fine company, their burker, but they're also scola .

and they like apple in the APP store there.

They're like apple on the ap sore, but they are also like equi, like there are one of the best peer sort of financial investors who also then puts their hand on the scale to send you traffic, like there are highly traffic destination with we chat and then they just decide who to open that up to. And of course, like you said, the in light touch ways, but undeniably, people decide to take money from them because that opportunity is available. Oh, and by the way, they might do IT to your competitor .

if you don't take their money, right, as we've seen, is crazy. It's it's incredible. So september twenty sixty, in made one hits five million transactions a day that they're doing across all of their verticals on the platform, march twenty seventy.

And so like what's that? Six months later, they hit ten million transactions a day on the platform by twenty eighty. And they have six hundred million active users.

They have over fifty percent market are of food delivery. They're crushing ing allama. They do over ten billion dollars in revenue, growing a hundred percent year over a year.

God doubling at that scale.

unbelievable. And that's when they launched ed, their IPO. So they go public in september twenty eighteen. And this was a big I P O, big china I P.

O, at the time, but like so many things, so is like a well, like that's impressive. But at least I was I didn't understand the extent of all. Yes.

mean.

there. So they raise about three billion dollars at a fifty billion dollar market cap when they go public.

which is up from thirty in their last round that they did.

And then in twenty nineteen, they grow another fifty percent. They do fifteen billion dollars in revenue. They turn profitable.

They do a billion dollars in Operating cash flow. They're netting come positive and then covered hits. And this is interesting.

I think unlike door dash, where covet was an unalloyed good for dora sh, it's a little more complicated for me ultimately. And IT goes good. But remember, their hotel business and their travel business is also a big part of the platform. So yeah, that got crushed, as you might imagine. And the .

highest margin part of the platform and mart.

yeah.

IT accounts for a smaller part of revenue, but a big part of profits.

big part profits. Q one, twenty, twenty, the total revenue down twelve percent across the company and hotel and travel is like crushed.

And q one of twenty twenty and china is like q .

two of twenty twenty, the U. S. IT all in in december. Yeah by you two of twenty twenty. Though revenue is back up, total revenue up nine percent year every year for the company. And people are starting to wake up you know around the world at this point.

They like, oh, oh, wake cover is good for tech companies and good for these next generation commerce and delivery platforms. So the stock starts to go on a chair in may of twenty twenty. The stock goes from a sixty five billion dollar market cap at the beginning of the month, so you know up modestly from the I, P.

O at the end of twenty eighteen. But you know flat fish two hit a hundred billion market cap by the end of may twenty. Only by october is two hundred billion dollars cap.

By february of this year, just a couple weeks ago of twenty twenty one hits three hundred billion dollar market gap becomes the third largest market cap tech company in china behind tencent and alibaba and IT trailed down a little bit since then. It's now at a two hundred and seventy billion dollar market up as we record this. But a wow, what a story.

absolutely. I mean, there is a stock market story going on here. There is a pendel c story going on here. There is an execution machine story going on here. And I think the biggest one that I want to talk about in a minute is a business model and profitability story going on here. Yeah.

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David. I went to sit with some of these numbers from today and and like unpacked a little bit, understand the company's position and how much IT has changed in the last year. Because if we looked at this, let's talk about the largest tech companies in china right now.

There's ten cent. Number one, the eight hundred and fifty billion dollar market cap. So worth understanding for those out there, china doesn't have a trillion dollar tech company that that is a strictly u phenomenon right now. I bet i'll change soon. But that is what IT is today. Alibaba hasn't seen the sort of reward that tencent has IT sitting there around six seventy five billion, may one, where we just talked about between two seventy and and three hundred billion is a pretty deep drop sort of a obviously between alibaba and made 2。 They're not yet in the league of that sort of company, but they're right there neck and neck with pinda duo is a two hundred billion of our company, which we've covered bite dance, the parent company of tiktok and what's the .

other doing or doing and toyo and tol.

uh, the hottest and eighty billion dollars. So the list sort of turns quickly into these hundred billion to two hundred billion, and actually lots of private companies and bite dances, private you know who would be in here, but is not public? I traded as well way yeah, that we've covered before, of course.

See you ve god, you know, pino do by dance and quite shi J. D, by do show you've done from there. So met one is in sort of rail air here and a lot of that of courses because of the stock run up from the last year.

But the growth story in terms of profitability for this company is absolutely insane. So as David mentioned, they've been profitable since q two. I believe IT was of twenty nineteen. But then in the last year, they grew their profits, their sort of Operating profit line from two hundred and twenty five million dollars a quarter to a billion dollars a quarter. So like they just kind of figured out, oh, there's for the Operating leverages in our business. It's when we tack on a bunch of other businesses that we can amOrtize the cost of acquiring these customers over all these different reviews streams and we can get them to, I think the now it's twenty seven transactions per user per year across four hundred and seventy five million transacting users. So you just have this situation where .

like as this bananas.

totally like your airbnb, you get half a transaction a year, your door dash, I can member what a number of transactions is per year. But whatever this is, the super APP, its door dash plus it's finding go plus. I don't think rite hilling is included in here because like you said, there are more of a partner in that now. But like they just own this big basket of transactions that they're already acquired you for.

So that's thirty transactions a year across a user and active user base that is roughly the size of, i'm guessing, like the population of all of north america. I don't know what the .

population of mexico is, right? Because the U. S.

Is what? Three, sixty or something? Three and sixty million .

and thirty three, thirty. But in canada is at another thirty million to that. I don't know what the population and like looks more than the whole population of the U. S. In canada.

yeah, it's wild. It's a huge number of users transacting. What I think six and a half million merchants, twenty seven times per year. Then when we go into segments, the largest segment of that growth was food delivery.

But obviously, they had lots of growth in hotel and travel and would have had even more sense pandemic in the last year, which I do think will rebound in a big way. You know, over the next couple years, uh, new initiatives has actually been a huge revenue driver for them, has yet to be a big source of profitability. But that things like actually setting up grocery stores like they are, they're really going hard. They're are doing things like local flower delivery, local medicine delivery and having these hubs of actual grocery stores.

Yeah, when you hear tony and talk about all the things that dash can do in the future, just look on over at metal on and like take whatever they're doing today and cut IT by three quarters. And that's like the vision for the at.

At such a good way of putting IT and dash is already Priced as if this is going to happen for them. Like make one here is trading at fourteen six revenue and dirt ash is trading somewhere in that same neighbor, d around fifty, sixty six. And so investors have sort of decided that this phenomenon that happened when you win food delivery and you can tackle these other businesses onto, is just like going to go well for door dash, which is totally fascinating. I want to get .

into the product aspects of this for one of the big things for me. And the story is like the primacy of the yan pink product and what IT all unlocked, and the fact that this is a eighteen year old product, it's so like dirt h may be able to recreate this of what like they don't have the benefit of an existing front door type compounding more type products. And they've got business model, you know, or digital ism here, where their restaurant partners don't really want the level of granular ari of reviews that you would need.

right? You know, the only way to arrive at the end point that the twin has arrived dead is by inhering fifteen plus years of these existing relationships and data with restaurant yeah in this .

particular way, one other what two other things I want to put in context here for me to and and its current valuation. So on a scale of the business, let's just take a revenue, I suppose, G, M V or profits.

but which we should say revenues on ly growing like thirty percent per year, not the monster three to four hundred percent who are seeing in profits.

but on a size on a scale versus dora ash. We don't yet have full year numbers for twenty twenty four made because they haven't reported q 4 yet。 But let's just take twenty one full year twenty nineteen numbers. As we said, they did about fifteen billion dollars in USD of net revenue in 201， and net revenue being .

that is all their take of all the food delivery plus all there, just like revenue from all the other businesses selling hoby tickets and book and travel on all that stuff.

Dora h in twenty twenty. So with the benefit of coffee, which accelerated their business, but I forget exactly x three .

x revenue from two thousand thousand .

and three x revenue in twenty twenty, even with that three acts. And tony, twenty a year later for door dash, they did two point nine billion dollars in net revenue. So we're talking about a business that is at least five x the scale already of .

the six to seven.

likely six to seven x the scale. Now let's turn to the profitability side of of the equation here. So lake, we said they generated a billion dollars in twenty nineteen against sticking to twenty nineteen in Operating cash for, oh, zoom, which obviously a completely different business and much higher margin, you know, incredible gross margins, incredible business on every dimension they just reported the other day. Twenty twenty numbers give for a twenty and four year numbers, and they did one point five billion dollars of Operating cash flow 2。 So like already made on is doing more Operating cash flow likely than zoom?

That's a really good because i've never thought to compare those.

That's really good. Obviously, different business is my mind is like a peer software margin incredible cash flow monster yeah .

and just the scale of .

meton like I think of zoom in dh on opposite end of the structure. And here's meton that's doing six, seven, eight, the scale of revenue over dh and more cash low down, spenser.

Yet there are so many dimensions of business model awesome ness that is a cruel ing to the mean. One is like they've squash their competitors, they have pricing power. The other that we talked about is that just they're layer on all these other sources of revenue on top of cake theyve already paid um or at least for new customers that they're requiring, you know they're able to spread that across so many different transaction types they'll do.

Another one that we haven't talked about is that like amazon, they're now making a lot of money on online marketing services, which is pure profit revenue. You have users buying stuff on your property. As soon as you introduce the ability to advertise to them, you get to keep one hundred percent of those dollars that the merchants are paying you like.

It's unable able gross margin business good as IT gets. And so sixteen percent of revenue is now the ads business that they have layer on top, which is a business that you only get to earn the right to have when you have a scale business where people are coming to your nation and buying things on IT. So there's like yet that other level of just leaning into Operating leverages there.

then there there's even another level be on that of they're also selling B2B sas to mer chants of eve ry tim e on the ref orm. So you know you're uh you're a restaurant, right? Like all the services that square provides you except for the core payments infrastructure, but like you know managing your inventory, doing your booking sites, like all all that stuff, you're pay roll, your hr well, wait to anzy to sell that to you. Not to mention now .

they have your financial data. They are happy to be your lender. Also, they're pulling the sort of square capital game here where they are giving loans to a virgins totally, which as we've also covered on on many epo de is an excEllent, excEllent business to be in.

So they have figured out how to do food delivery and not lose money, and that is a massive under statement. So all these things point you in the direction of, oh my god, this company is a monster. Like how could you be sure? Like what's the concern here? Maybe travel doesn't come back and that's their highest margin revenue. So now that doesn't come back, that's a big deal.

Yeah, seems unlikely it's not going to come back, though. I don't .

think the art is coming back, and it's clear that like they're taking share in that space.

So I think you don't look, this company is a jog like there's just no two ways about IT. I do think too. H I want a bare cases, but things like to be watchful of that I could see. One is they obviously have a fantastic relationship with ten to twenty percent of the company. I think everybody's very happy with that.

But as much of a jug nut as h mato on is tense is even more of a juggler as we keep harping on on this episode and Frankly, on this entire show, if that relationship were to sour at all, because tension is the ultimate top level, is a source of, and control of traffic in the chinese ecosystem right now. Now, by dances is on the rise. There are threat to tense, anyone up, but for the time, intense and is dominant, any fracture in that relationship would certainly be detrimental to make one.

So for the fifty percent of their customers who use their mini program, do they actually on the customers? Or does tencent really on the customers and they are just letting to use them? Like what I against the true test to this would be if tencent got mad and punted the mini program, made IT hard to find or kicked IT off completely, how many of people would actually go in download mt ones .

APP directly? I mean, I think a lot. Yeah, there's nobody else out there that has the scale of different service lines and merchants and reviews, most importantly, the review database and asset.

Uh as me to on. So so I think it's very defensible. But but I is a dependency of the business. I think the other this is more forward looking than risks, the existing business. But we didn't talk as much about what's in the new initiatives line for me on. And there are a lot of things, but the biggest and the most important strategically right now is community group buying, which those of you who are not familiar with that despite sharing two words with group buying and the group on space is quite a different phenomenon and, uh, uniquely chinese phenomenon right now, but is usually strategic well IT.

And just to explain its super quick, it's group buying and e commerce, not group buying at your favorite local lutie e like IT is you invite your friends in a fun way to shop with you for something that's gna be shift to you. And the cost structures is totally different to Operate that type of business and group on business there.

is that. So what you're describing pindi I do is business which is a competitive front as well.

I thought that you are learn to no.

So it's actually well, that's that's part of the holistic system, but very specifically around groceries is where the wars the big front is right now. So pink to video does, as we talk about in our episode, does exactly what you just described. And community group buying though, is canon lic a girls y storm meets multi level marketing.

Uh, and so the idea is that a member of a community becomes a selling agent for the goods producers, in this case, mostly groceries. So like you, are you a farmer you're making, you know, producing grocery lake, a agent from previous communities, brings people into them as a group buy from, you see you're this immediate, the whole girls y store value chicken. And this is a in major front that made one has invested in hugely and adding to the APP.

And so you can, as a group of leader, start a group, build relationships to worth producers, get clients, make money on a business here. And then as customers, you get much Better produce at a much Better Price. And a lot of this traffic is flowing through which to so the two leading players right now in the space are made on in penda, which is also .

brought me into the business. See, you aren't really thinking about like who made once not going to be successful in taking P D. D.

Core business. Your thinking is for the next frontier, they are chasing that the earth chasing and we'll have overlap. They may not win that.

yes. I think one of the themes that I see from this episode is like the more stuff you control, particularly in china, attack, the Better your company is and the Better your economics ID and the more your fly wheel spins and the more customers you get yeah and so part of that this is like me on because of their incredible strengths already can keep winning every front. But if they don't win every front, you know they could end up alibaba, where all a certain they're losing on a bunch of fronts.

right? Oh, man, there's a big game of king, king the hill going on constantly. And you get to always be defending your turf and, uh, be trying to find the next one totally.

Now, I think that's the future. Like, I don't get a bare case for me to on right now or do I do? H right?

Man is so funny. okay. So we have danced around the idea of power, but we haven't named any yet. So what we formalized that. And get into our power section here. So of the seven powers, the hamilton seven powers of counter positioning scale economies, switching costs, network economies, process power, branding or corner resource, the first one that like really, really, really hits me here are scale economies where met one has been able to become very profitable very quickly because of scale economies.

And I think the way to think about IT as sort of the netflix comparison, where because netflix has the most viewers, they can pay the most for content because they can emit tize that across the most viewers, it's like, hey, there's already four hundred and seventy five million people using me on and transacting, can we put some meles in front of them that they could know potentially also transact with? And the fix cost to stand up, whatever that business are, are the cheapest for mato on relative to anybody who standing IT up and doesn't have all those people, they could spread out the fixed cost of standing up that business to. That's sort of how I think about yeah.

they can go invest. You know I don't know what they probably have announced, how much they are investing in community gw buying, but they can go invest billions of dollars into IT and that's worth that, right? Because they have six hundred million years. They're gona stick down in front of .

yeah or if like, let's say the business is cheap to stand up but expensive to acquire customers. Like is not for me one right .

right there. You have all the customers and they just cross sale and cross yet totally.

So that's the big one that hit me like a tonne bricks when I was like, why is made ones of freking profitable?

So the other one that I was thinking about, i'm not if we can talk to this life, I don't know what the right texan omy is here, whether this is accorded resource or switching costs by the power of the review data base, but the reviews themselves, and then all of the data around IT for recommendations is enormous. Here I I think we showed in the story like to such a key part of what's become defensible in the space.

And I already thought that you blew IT on so many fronts in the U. S. But like this is just such a star contrast of like how valuable yelp could have been in totally how not valuable they are. So I think this is switching cost because once you're on as a consumer, once you're damping review platform, I don't think it's necessary according to resource in that like you could go use another review platform and somebody else could stand up a review platform and have all the listings that Young ping has. But as a consumer, you wouldn't get the benefit of all the eighteen years worth of review data that's ready and there.

right, huh? And you're the more simplistic angle that would be able IT is a corner resource and its made once cornet resource and no one else has .

all those reviews. So maybe that too thinking like slack context yeah I can switch from slack to some other uh, messaging platform for my company but then I lose all the message history that I have .

yeah either way well.

whatever you want to call IT, I think that's a big .

power yeah for sure. What's interesting to me here is they don't really have network economies like a lot of the times when we do stuff on the show, the answer is network economies. It's like it's interesting for a tencent backed company.

IT is not a social business. It's just not I mean, maybe they will be in this group buying thing, but it's that's not where their power comes from. Now like if your friends, which is to something else, you don't care when you care. I spose if, like your favorite restaurant is not on there anymore.

right? right? I think there's some light weight social features of, like you can play on trips together, you can book restaurants together, you can do orders at restaurants together, that kind of stuff. But I do think there's a two sided network effect of the merchant and what you to do, the merchants and the consumers that as a consumers, you want to all the merchants on there and as emerge, you want all the consumers. But that's not that defensible like there are their platforms like lama that have all emergency could have all the consumers too.

yeah. So anyway, I think we're speaking the same language here that lots of scale economies may be a great resource, and if not accorded resource, then definitely switching costs.

Yeah is there counter positioning .

here to first .

to do well? I'm thinking about sea trip, and I don't know enough the detail about how they won the travel market from sea trip, but I would imagine that they were probably able to subsidize the consumer side in order to gain share in a way that a trip couldn't because me one has, as we've said, all these other businesses that they're also getting contribution dollars from .

their maybe I think the way that I sort of think about counter positioning is why is that, that sea trip would be doing something harmful to their own business by chasing this, and i'm not sure they would. It's just that I would be really expensive for them to go and acquire all these customers. So it's more like scale economies. Yeah.

yeah. great.

As always, we feel their open for a interpretation, but we need him well and to tell us that, okay, right? What would have happened otherwise? The way we want to do this section is what would have happened if they didn't merge.

And the answer is, all the one of them would have been left standing. The question this is, how do you get there? They both could have a razzed one more round of capital and then merged.

Or one of them could have raised one more round of capital and then they would have squashed the other one. And I think IT just becomes this thing of like if they both capitalising huge amounts of capital, eventually they both just go out of business because those businesses were not profitable. And arguably, there are some point where you've taken on so much capital where your business can't get valuable enough to justify a combination.

But I think IT was just kind of like a high stakes game of chicken where, you know they had been talking for years and when was the right time emerge? And you know how much solution can we spare before? Like how many new shareholders do we have to bring on before we actually do get emerge? And then, okay, you know this much, I on this much, we get profitable .

and tell jung talks about this on the evolution, the next billion nine past 的， yeah, they have been having conversations for years. Maybe if I knew about IT, maybe they didn't. But yeah, this was gonna en, at some point.

Yeah, up playbook.

Yeah, you said, do you have a bunch of them.

right? I do have a bunch of rome. So one of them is the thing we even talked about yet, which is the joy of being in a growing market.

So e commerce in twenty seventeen was a twenty percent saturation industry that had saturated twenty percent of all commerce. Real world services was only five percent. So while alibaba is definitely in this growing you know segment where more commerce is shifting the online, there was way more opportunity in the retail services industry.

And that leads to the sort of excitement that investors and entrepreneurs had around the offline to online or as they offered with the o to o business, which ended up actually becoming the key to sort of ascending to become one of the top three chinese tech companies. You had, you know, an e commerce company, which was sort of online, offline, but a far less complex version of a previous generation by do, which is a digital only company with search in tencent, which is gaming and social, a digital only company. And so your way of getting to capture enough margin dollars to become as big and successful as a business as one of those was this offline, online movement. And they were sort of the ones that emerged successful in that. And I was in this crazy, fast growing plenty of headroom ahead of IT thing where you only five percent penetration in twenty seventeen.

It's also a good thing like to highlight in the west. I don't think we think as much about the the lake with this story proves, which is like everything can come online. I think if you were to ask people in china, certainly if you were to ask anything whether there are any category of dollar spend in china that he could not bring on the platform someday, he would say, absolutely not.

I can all be on the platform. I mean, literally, they're going to rural farmers and they're selling online directly to customers facilitated by me. One, you know, they're cariole any any activity you want to do, any store you want to visit, you pay with me on in a story.

You go show, you go shopping at a local grocery store in the equivalent, the safeway. cool. That's cool. They do IT with the meeting up while you're there in the story.

And David, I know this is like a personal investment thesis of yours a which is, don't you know bet on the income ants to effectively go through digital transformation. The long run you just bet on tech companies to have figure out how to successfully move the need served by those incumbent .

online yeah but I think it's even from that perspective for me, this is I opening and only possible because china leap frogged IT very real sense for with bringing their population online. But just like all these things you would never even think could be a digital transaction can become .

a digital transaction. A great point. Speaking of things that we don't do as much in the west, I think this thing that met one did in advertising their customer acquisition costs over a crap ton of businesses that they put in front of the customer. Like american companies don't do this as much like taking our large custom base and offer a completely different things to them.

I mean, amazon is probably the best example by bungling more and more things into prime to sort of expose you like I never would have thought like go this company that sells books or let's even say it's further in their journey that like this company that has the everything stories is also going to be one of the top two players in movies like in streaming movies like I wouldn't bet on that. But everyone is a really good job of understanding you are customer and we're going to put more and more stuff in front of you. I don't know that other companies do that as much like people kind of stick to their lane.

This was uh, this was my other big playback team I really wanted to highlight for me, which is thinking about exactly what you said through the lens of how china and made to on in and seeing what everything is going on there. Maison's the best of this in the us, and they are getting like a sea on a river .

scale like uber really wanted to do IT and sold this vision of we're going to there's uber, everything. We're going to eventually be able to move all the stuff around. And you know IT doesn't matter if you're taking a ride or something, taking a ride to you, you you're gna get IT through uber and like IT just didn't happen.

And I think what's also really interesting for me is that the product experience, the customer experience is so much Better when IT all works together. And just like the economy, like how the food ecosystem works on in china versus the super crappy that I now see way version IT works in the U. S. Of like reviews are disconnected from the food, which is disconnected from the dishes, which is disconnected from how I order for delivery, which is disconnected from how I ordered in the restaurant, which is disconnected from how I book the restaurant like that's a crappy customer experience.

right? I looked up on yell up and then I book IT on ready year talk or open table and then the building is completely separated from all those things. But if I urged at home and actually actually go to door as even if it's coming from the same restaurant, it's like a nightmare.

Total nights are to great .

point yeah that the vertical integration not only creates a second, capture more profits but also a Better consumer experience.

Yeah, it's like the ultimate irony given that one seeing and everything in china started as just copying the U. S. And now it's like, wow, the U. S. Is so far behind.

Yes, that's a huge point I want to drive home on. This episode is like the world, and we've talked about this on other episodes, but china is not the place copying all the american companies at this point. There are so many things, including payments infrastructure and like fin tech generally social buying like the U.

S. Culturally has not adopted social buying the way that that IT has in china. And everything that made one is doing is even put a category on IT because it's offline, online IT. IT is the services economy and and we don't have a direct company of twenty companies that, that roll up to that for the same thing.

And I think that there is a huge point to take home, which is china is leading in innovation on mobile and on the internet in a way that in many categories, the U. S. Will be years before they come .

to totally what else you got.

alright. So another big one that we didn't really talk about, which was a secular trend going on in china that enabled all this to happen, was the growth of middle class. You know, the fact that tier two and tier three cities became an addressable population that could spend on things like smart phones and then things that, you know we're apps on smart phones wouldn't have been possible a decade, two decades before this came online, hundred percent. So I think that's a big realization.

And then they continue diffusion of wealth out from, you know, I feel like a couple years ago when all this was getting started, you know, on line, off line, and in may and IT was second and three tier cities. Now it's four tier cities. It's the countryside. That's what community gw buying is about.

That's really good point. I hadn't followed this sort of continued dispersion of well throughout the the lower middle as much I would be remissions ed and underscore again ten cents unique strategy of both being a financial investor and a thun on the scale partner. You know, it's a little you gotta make the deal because otherwise someone else is going to is just it's a wild amount leverage that they have in any deal.

And then they sort of come through like that, just a deep, deep pile of capital available to you to go chase an opportunity and push someone else out a business and it'll give you traffic on top of the opportunity. And like most of what you're spending your capital on is traffic anyway so tense actually can afford to invest less in your company and invest more in the form of traffic. But they don't they do both the huge amount capital and huge amount traffic.

So it's he's an unbelievable business and it's something that is not done for one reason or another in the U. S. Probably for entire .

trust concern. Yeah probably two quick things on that. One was we didn't talk about the valuations of the last rounds that uh, paying two one raised before they merged, but IT exactly reflects what you're saying. So mone raised seven hundred million at a seven billion dollar valuation and the Young raised like three four hundred and a four billion dollar valuation because ten cents we bring the traffic right also .

has ten percent your company you have strike raising you know these pittenger at one hundred billion dollar valuation. Yes yes, yes.

And then the other thing is um I think I was on a robo X D P O preview analysis with mario. Was IT you or mario? He said I think was mario that was said tencent is like the most interesting man in the world because the box is entering china with A J, B with tencent was like, I don't know, always enter china, but when I do, I enter a tension.

you have to, I mean, it's crazy intense. Owns fifty percent of that or forty nine percent of that. J, V. It's like for us bringing you into the country in the privilege of of that happening, we're going to take half of your revenue crazy. So I brought up anti trust there, and that's a thing that we didn't talk about the episode at all.

What is anti trust? Look like in china if they're able to squeak uma out and really be the only player and really have pricing power over consumers and over restaurants and over all, is IT like that something that in the U. S. Would get deeply scrutinised in, especially in the climate that we're in now? So how does that work in china?

That's a good question. Honestly, that's probably the biggest risk from like an investment. This is standpoint of anything in china, which is I don't know, but I think IT basically the way that works is whatever the coming this party wants to do, right? Or a or A L.

I have no idea. But yeah, if the business model and free market dynamics are such that you just have as much room the run as you on on pacing and profitability as you want, like in our system, in the U. S, we would found upon that in another system, you could imagine someone saying, okay, well, we just have to have a cut job. And I don't really know how that works.

I don't know whether it's a cut or more like that's cool, you keep doing that. But if stuff starts happening that we don't like politically kind like one thing, twitter clone back in the day, you know that the boy gets pulled on you and when we're seeing that risk with alibaba now with jack ma and the end IPO point getting pulled, so that risk is real.

yeah, it's a great point. Okay, couple more here. So we are seeing food as the go to market strategy for a company that is ultimately getting into all consumer services. You know, we thought about in this way of like getting free profit dollars because you've already paid off your costs and explaining and all these other businesses. But what we're actually seen here is like landon expand.

But in consumer, it's like this classic B2B con cept whe re you hav e a g o to mar ket, where you get embeds and then you start selling more and where a stuff like this does exist in the U. S. But it's what enterprise companies do sales first. Oh my gosh, you ve you that so there's definitely an element there of this land and expand leads to you know more stickiness, more attention, uh, in the very same way that you do in in the enterprise. And David, to your point on switching costs, that's where the real switching costs come from when you're buying everything from one provider is hard to rip that provider out.

Yeah, totally.

All right. So that is all i've got for playbook you have anymore.

nope.

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And David sent you, and thanks to friend of the show, Christina anta CEO all acquire listeners, get a thousand dollars of free credit veta com slash acquired are IT, value creation and value capture. So a long time listeners will know there's two elements to this. One, how does the value that they are capturing in the world compared to the value they create? They do a good job at that like google, or they do a bad job like wikipedia. Oh, of course, not A A good foundation. But group I .

created a lot of value for consumers.

not for much as a great point, unfortunately. Then second, darling, you know, the more altruistic one got creation versus value destruction. So on this first one, they're doing a damn good job capturing value.

I think if they were in a knife fight still, you'd be like guys like you can't seem to turn a profit in this business. I'm worried about the long term that's no longer are concerned. So I think kind of a no brainer here on creating a ton of value and capturing their fair share of IT and probably will capture even more in the future.

Uh, value creation for this value destruction in in in the U. S. We feel a lot of people feel very strongly that these food delivery companies are not great. If you've in a restaurant, you know that it's not great to participate, but you also kind of have to participate because they're aggregating. You know that ash newbridge are captured more and more of the .

consumers and the careers too, even been strikes. Union organizing.

for sure, everyone's get. So what dynamics Carry over to mate one? Like is that as arly or nari er for restaurants using made one as IT is for a because you could imagine it's even worse because they also have the platform that says your restaurant to one star restaurant and then they're trying to extract some big percentage of orders. Oh, by the way, they have all the customers.

Yeah, I don't know. I didn't find anything one way or the other in my research and in part .

it's because like you know, we're all reading newspapers all the time in the U. S. Is going to be many, many people who feel fine writing to take down piece of some U.

S. A. Tech companies like we're not really reading the chinese press that's critical of these businesses.

Well, I know this is a like way out there. The limb speculation for be so listeners who know much more about china or live in china have feel free to correct me in the slack or email is acquired F M. com. I think the government in china, one of the things that would make them upset and come after a monopoly platform would be like, I think is the government's best interest in china for restaurants and local businesses to be successful. And if me on were putting them out of business, I think the C, C, P would want to go have a chat with functioning .

at a great point. Yes, there's a check baLance in that way. Well, listeners, if you know more about this, we will be very, very curious.

Yep, totally.

alright. So grading, is there any scenario where was not in a plus for these two companies to merge? And for let let's define this real quick. If you're a shareholder of mate one or a shareholder of the amping in twenty sixteen, is there any way that you could have a Better return on your dollar than than these companies combining and achieving not only the profit but the market kept that they have today?

Yes, one hundred percent. If your name is alibaba, this was an f minus.

Oh yeah. Because if you think about their cost spaces was they invested at rounds from evaluation of what a billion dollars through thirty billion dollars.

i'm sure, way less than a billion. The series b was fifty million dollars in may one. So you know, I don't know, maybe the valuation was three hundred something.

okay. So they got obviously very nice markup by these companies merging and at a combined value of I I guess what would the combining value be? I don't know at that. At the IPO, at least there was fifty four, six billion was the combined value thirty billion .

at the merger? I think I wanna was more like fifteen.

okay. So you know nice return. The downside actually for them or two downside. One, their first plant was getting out of something that would then you know go stack another three hundred billion dollars of market cap on top of the atter gy， shy of three hundred. The second mistake was investing in .

the competitor. Yes, the biggest, bigger still from mistake, was allowing this to happen. I mean, maybe there was nothing they could have done to avoid IT, but now they have an existential reat competitor to alibaba that exists out there with ten and as the primary shareholder that's just been destroying them in this market and potentially and many more to come.

Yeah and they're oub bly exposed. I mean, they exposed in their core business, but they made a huge bet on the rival I didn't pay off.

Ah we should be clear to all the muscle exists. It's not dead. The story is not over. Most standards .

there are probably are.

A lot of less is in generate now or screeching at this link. Alia is not dead, which is totally true. But mates one has sixty seven percent market here.

So then the question becomes if you were ten cent, was there any Better outcome than these companies .

merging ten set is just so ganger .

they are likes to cay a china .

but with traffic yeah and that's exactly what they like is zoia china is only slightly less gangs. Ster, I I think tencent and sqa did Better in this transaction than the company itself.

huh? Here's a question. Has coa done Better on met won or door desh?

That's a good question. So I pulled up at the IPO sakya passed on seed.

but they are invested in serious day and everything afterwards.

and ordered. So in the journal sqa invested around four hundred million into the on the point to all of them over the years. And at I, P, O, their shares were worth about five billion dollars at I P O.

So that's a four point nine billion dollars to four point five billion dollar return at I P O. But then the company is up six x since I P O. Just think about .

their own ten percent of a two hundred and seventy billion doa. Company, right? If they held so it's a twenty seven twenty ano twenty six, twenty five billion dollar absolute return. So how much did skua return on door dash ball park?

So pri po a little over eighteen percent of dorter. Ash, I forget what the delusion was in the IPO, but let's assume ten percent reasonable, a reasonable OK. So that would take them down to what that would make IT easy. Fifty percent that they are on which the prouty world more than that of door dash.

So now fifteen percent of where they're trading today at a market cap of fifty eight billion.

yep, so seven billion. So yes, they do a lot Better .

made one is no competition way Better on mate on fascinating IT was closer outdoor dash in uh the end of I P O day. But no question .

now makes think for a long time this rule in venture capital that I remember a drina remember after wards, like always ownership, ownership otherness. Ownership otherness is I wonder if that's different. Now I certainly have a different perspective, like eighteen percent ownership and dora as well.

I mean, that's great. But like shoot, take five percent or mates on over there. Yeah, just I mean.

IT gets back to the thing that packy flagged for all of us a few weeks ago, which was, what is the likelihood that you could become A U mega, mega outlier mult hundred billion dollar company? And I don't know, but I I still think it's important from an early stage investment perspective because there are still very few metres you up like if the argument was there is more mattins being created than ever and there are you know a dozen, two dozen, three dozen, you know neutral dollar or soon to be trillion dollar companies. That be one thing to me. It's at least the way I sort of rationalized IT is sure all the valuations got bigger, but it's still incredibly rare red to be one of those whatever we want to call this class of company.

And I think that's totally true. On the other hand, I do you think there's some trickle down effect here? We're like depending on your fun size, I think there are a lot more one to ten billion dollar companies out there than people imagined a few years ago.

Very true order of magazine.

if not two more. Yeah so if you're a fun size of call IT less than five hundred million dollars ownership maybe isn't quite as important as you thought I was.

嗯， the interesting idea. Well, I think that about raps IT for grading, we have some good carvels today. Yeah, that we should hit here before we had home.

Do you want to start? Yeah, I can start. So my car out is a great short book that I just had. I broke my rule about not reading any recent books, but this one felt like not too much of a commitment and is a really interesting, timely topic called extra terrestris by ovi lob. Have you heard about this span?

No.

it's great. So ovi is the chair of the harvard astronomy department and the book is about, uh, to remember uma ua, the extra terro, the visitor from the other solar system a few years ago that came through our solar system. This was all over the news, and IT was picked up by telescopes.

IT was this very odd objects that entered our solar system is very rare for objects outside our solar system to enter our solar system had all these like, really interesting properties. Scientists weren't sure what was. And there was all this bus like, oh, could IT be like an aliens spaceship. And then over the years, to the scientific consensus says, basically so, like, oh, IT was a really flat shaped in our solar system asteroid 嗯， commit, I guess that would be anyway obvious. Written this book and he's a widely respected, you know, incredible scientists, is the chair of the astral department at harvard.

And he's like, I don't know what this what is the properties of this thing are such that to decide as a natural phenomenon, you have to bend over so backwards on so many dimensions that like, if you outcomes razer, this thing, obviously the enter that comes out as this was extra trestle al technology and is basically like, can I prove that I don't have a photograph of IT? But like he goes through all the evidence and he's really going against the scientific community. Here is is popular.

It's a pop book. This isn't like a scientific article, but he makes this great point. He's like, you have pascal's wager uh which is does not exist in because famous wager is like, well, if you think about the consequences of one of the other, you're probably Better off believing god exists because you'll be happier probably during life and i've .

god that exist.

you're Better off low cost for you to do so. Yeah, exactly. And so that to lob proposes what he calls the more wager of question is, was this alien technology or not? And similar to pass gales, wager its low cost to humanity to believe IT was.

But the upside is enormous versus the other way around. If you believe IT wasn't, there's no upside. It's to start as quote and the potential cost is enormous. And so is like, well, if we believe and and he actually really generally believes that was extra treasure technology, well, what is that open up for humanity? IT opens up our minds to think about, well, if other civilizations out there controverts light years, well.

how could we do that? That's really cool. It's really cool. I should read just to get my head out of, just to read something different. You know, I feel I consume a lot of the same media. The media kiss me the same heads space.

Really hundred.

That's awesome, right? Adding into the list, my car vote is my favorite subject. And IT is called luddites learnings. And it's a guy named john luddy, his principal al, at founders fund.

And we actually cited his work on the stack episode, the back L P episode, that we did this, like his writing spends so many different topics, but every single one I read, i'm like, oh my god, yeah. Like, wow, that's a huh. That is really well reasoned, logical, and the outcome is a little scary and makes me sort of question things.

And the first one was, I maybe you ve been talked about on the show a around internet tail wins. They're slowing down, mobile tail wins slowing down and sort of moving into a new type of businesses that will be created in the future. That artist less favorable business models than existed over the last twenty years and all these interesting decelerating trends, which for all the conventional techs m around everything continues to accelerate, I found was fascinating.

You know, around like can we possibly have any more time in front screens? no. So can there be bigger advertising businesses? Like here is the only way you could make them bigger is a lot of things like that.

In the piece that I found was really interesting, the second most recent one that I thought was great was around timeless. First is timeless advice, and IT was around. Here's a few examples of sort of five pieces of advice that are generally widely held to be true.

But if you just go to a different part of history, that would be terrible advice. So why do we hold them to be timeless? And maybe you should do the opposite now.

And they're very like there are things that we all take to be like very sage pieces of wisdom. I read that that was a really good piece. That was a really good one of them was home on a separate. It's a good idea on a home.

And he was like, if you look at the tax advantages and you look at the massive increase in demand for homes, of course, the Prices were going up because more people than ever could buy homes, wanted to buy homes. Is that the case? Now there's all these reasons why you should actually examine in that, you know new tax and sends all all sorts of stuff.

And then the most recent one was around this go go al time that we're in right now, uh, that he calls finance as culture, which is a of course, everything that we're seeing with stocks only go up and everybody, you know, pop culture discusses finance and has various elements of finance that drift in and out of IT. Finance has become sports, finance has become entertainment, finance has become conversations with friends and examines what are the reasons that this could either, you know, pop or continue and sort of which camp do you want to believe? I just find always writing so good. And john a for your listening. Thanks for really writing, really thought provoking work.

totally. Hundred percent agree. So we do. I one boat is carve out that relates to both of our car out. I think we ve got to to say today, yes, given the fund connection is starship and only smokes, these smokes.

Flu came back, landed and and waited like a whole minute or two before IT blew up.

Oh, bit, I mean, that's enough time for people to deepen. E when IT lands on mars.

totally, if he blows up only a minute afterwards, they were no. I, it's an unbelievable accomplishment. And actually I was thinking, when I watched that video, have IT landing earlier today and they have some beautiful footage of IT, I was wondering a related to your first car of out of like, well, did we just pass some test like instar tractors, this thing called the prime directive, where you can interfere with us species who hasn't discovered work technology yet. And when IT came back in late, as I do, we hit some thresh holds are like somebody get to pop out and, you know, we get to meet aliens now. And obviously, it's not warp technology, uh, just a bigger rocket, but so exciting for what that means further future .

space travel on every demand. So cool. Just think about how many starlink satellite they can launch off of a star ship. I don't know if that's part of the plane.

Not they can launch six to seven times as many and is totally part of the plan. Yeah, incredible. I think it's sixty in a falk and nine deployment versus a four hundred in the starship deployment.

Be so cool if like two years from now, we're all on starting .

in internet yeah I mean, I literally had someone in my house coming in fixing the internet. So if there was a more full proof system, the my test readings were off, getting from the pole to the inside of my house, which then got split. So IT increase the disable readings.

I learned a lot. I didn't know disables were involved with cox cables and sending signal, but IT and IT was a pain. And IT would be great if I don't know, maybe start link has sort of the same way that IT ends up getting internet to your router. But yes, a Better system than the um I S P we all deal what would be wonderful .

that would be a wonderful .

alright listeners that's IT for today. Yeah, I think you should join this lack. I think you should come join us. We want to talk about this episode. We want you to talk to other smart people.

I'm deferred from my script here, but David egistus and researching, we realized that over fifty percent of the messages in the acquired slack R D M. And most of them are not to us because like we just don't get that that many of them. So yeah ah .

it's kind of cool like we're doing more with the slack and we are looking at, uh, slack. The company actually gives you some cool analytics and graphs. And uh if you look at the daily active usage and weekly active user graphs for the quiet, like it's like at a small level, but like they're on an expense title curve, like it's super cool.

是 for sure and it's mesh。 You know, it's not hub and spoke. So like everyone is soaking to each other, sometimes with us in channels, but also sometimes, you know, finding the founders and finding investors and finding customers and making higher is just really cool.

So I freak in love the community that we've developed here. And you should join us in the slack if you want to, to be a deeper part of what are doing. Join the lp program will be on zoom calls with you once a month.

And L, P, S, we've got one of those coming up. So we will see you soon. And yeah, then you get to hear jake tell us about sas in twenty twenty one, which was a privilege to talk to about such a fun guy. So alright, if you like this episode and you're still listening, which would be shocking to me if you made at this farm into us just telling you all the different ways that you can be a part of what we're doing.

Well, it's like the end of fair pear, you know and it's like you're still here. What what do you do here? Go home. I'm looking at the time come where I will cut some of this that were recording that were three hours and nine minutes.

Go home. Alright, i'm cutting us off listeners. Thank you so much. Share this episode.

I'll see you next time time.