In this class, I talk about Shopee (ecommerce) and Garena (online gaming) in SE Asia – and the complementary platform businesses Sea Limited is building.
The previous articles and books I cite are:
- #20 The Basics of Garena / Shopee and Audience Builder Platforms
Concepts for this class:
- Audience Builder Platforms
- Complementary Platforms
- Arms Race for Consumer Attention, Engagement and Spending
Companies for this class:
- Garena / Sea Limited
- Lazada / Alibaba
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.
Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.
Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the question for today, can Shopee beat Lazada in Southeast Asia? Or more specifically, can Shopee and Tencent beat Lazada and Alibaba in Southeast Asia? Because both of these companies are strategically positioned with the China giants. Lazada is outright owned. by Alibaba and then Shopee, which is Garena or Sea Limited. I’ll explain that in a minute, same company. You know, their major investor is Tencent and their founder. So it’s kind of a bit of a partnership, sometimes outright, sometimes a little more arm’s length. So that’s a very interesting competitive question and that’s what we’re gonna take apart and I’m gonna ask you to sort of take a stab at it. What do you think’s gonna happen? There’s a lot going on with this right now. Plus, these are just really cool companies, there’s a lot going on and it’s fun. So that’s what we’ll talk about. All right, a couple other quick things. For those of you who are subscribers, I gave you a brief assignment last week to say, take apart one of the learning goals, whichever level you’re at. Easy first steps, level two, level three, level four, wherever you are within that graphic, choose one learning goal and try and find a company and sort of explain. how that applies to that company. So for example, if you’re talking about something like switching costs or network effects or platforms or any of this, pick a company that you have some exposure to or that’s interesting to you or that’s in whatever fields you’re in. And sort of try and see it through that lens. And the best way to do that, I always think is to write. I mean, my experience is if I don’t write something, I don’t really know it. So I forced myself to write a couple paragraphs or just to do it in a PowerPoint presentation and write a couple bullet points and do it that way. Tends to be a lot more valuable. So that was the assignment for last week. I’m gonna give you the same assignment for this week. Take another idea within your learning, whatever step you’re on, one of the learning goals, find a company and then write a couple paragraphs on it, a couple bullet points and take a stab at it. Now I’m gonna kinda keep pushing you to do this because coming on the horizon, we are gonna start to have basically sort of exams for each level and then we’ll start issuing certificates. So we’re gonna make this a little bit more formal and as you move from sort of level two to level three to level four, and yes, if you notice the colors I used in the levels, they do correspond with the colors of black belt, brown belt, and stuff like that because I like. mixed martial arts and that even though I’m terrible at it. So the colors are the same and we’re gonna start doing some online tests you can do and if you pass, you get a certificate and we’re gonna start issuing sort of more formal, you know, this subscriber, this student has reached level three, has reached level four and we’ll keep going up. So it’s gonna get more formal as we go along, but that’s the direction we’re heading and that’s kind of on the horizon. So these learning goals are gonna be helpful. If you do these, if you do the exercises, you’ll find passing those tests if you want and getting certifications is gonna be easier. Anyways, that’s what’s coming up. Okay, let’s get into the question for today. But first, if you haven’t subscribed, please do so. You can go over to jeffthousengutton.com and sign up there. There’s a free 30-day trial. Try it out, see what you think. There’s a ton more content. Not only every week, but at this point we have a fairly large library of content about everything we’re talking about that’s been built and that’s going to get bigger and bigger and only members get access to all the content. And I’m going to start drawing on that a lot more. Okay, let’s do that case. So the company I really want to talk about today is Shopee. Sh-O-P-E-E. also called Garena, which is their online gaming business. Shopee is their e-commerce platform. Garena is the online gaming business. And then it’s all under the company title of C Limited, which is now publicly traded. So you can pull their numbers from the New York Stock Exchange and you can see all their information. I’ll go into that in a sec, but the learning goals for today, I’m gonna talk about Shopee. and then sort of talk about the key ideas that I think are important. And then out of that, we can tee up this question of, how are they gonna do against Lazada in Southeast Asia? And there’s a couple key ideas within this. So these are gonna be the learning goals I want you to pay attention to. The most important one is what we call an innovation or audience builder platform. I’ve given you several different types of platforms, Marketplace, last week I gave you Payments. I’ve talked about audience builders like Yoku YouTube. That’s kind of what Garena is, the online gaming business. So I want to sort of talk a bit more about audience builders, which kind of bleeds into the topic of innovation platforms. But as I’ve mentioned many times, I keep a list of about six or seven different types of platform business models, and I’m touching on them one by one. We’ll also talk about marketplace platforms, which we’ve talked about before. We’ll talk about complementary platforms. That’s been an idea we’ve talked about. payment platforms, touch on that. But really the other big idea outside of innovation, audience builder platforms, I want you to think about is when I’m calling the arms race for consumer attention. And that’s kind of the other big idea. I’ll get to that at the end. Okay, so just keep that mentally there. I’m gonna touch on that many times. Those big concepts are also in the show notes and that’s the key takeaway. All right. Now, C Limited, interesting company based in Singapore, really kind of got on the map around 2009. And they were doing entertainment online gaming, basically. Playing on your phones, on your PC. And because they’re focused on Southeast Asia, which really means Vietnam, Thailand, Taiwan, Philippines, Singapore, Malaysia, and Indonesia, You have to kind of go back to 2009. That means a lot of cyber cafes. This is not like China where everybody has a smartphone today and everyone has a cheap data plan. That was not the case in most of Southeast Asia for most of the recent past, although it’s changing very quickly right now. So when you think about online gaming, you’re thinking a lot about cyber cafes plus phones plus PCs. So having those sort of connections being local on the ground is important. We’ll talk about their online gaming business, which they call their digital entertainment business, but it’s online gaming and what they’re doing there and what they’re not. 2015, they launched Shopee in basically seven different markets, more or less the same markets. So that’s interesting. And that’s more of an Alibaba type business, a marketplace platform. Around the same time, 2014, they launched Airpay, which is a payment service, so a payment platform, but mostly in Vietnam and Thailand. And then they floated shares on the New York Stock Exchange in 2017. Now, a couple of things jump out as being really interesting about this company. And there’s certain annual reports I just love reading where I think they’re just phenomenally well-written. Sea Limited is one of them. They’re writing about how they think about their business, how they describe it, the language they use. plus the businesses they’ve chosen to get into and those they’ve chosen to avoid, absolutely top notch. I mean, it’s some of the best strategic thinking I’ve come across. I mean, I really like the language they use. I’ll talk about that. But now according to them, they are number one in online gaming by revenue in the region, Southeast Asia, obviously not including mainland China. They claim to be number one in e-commerce by GMV and total orders. Now again, you gotta kinda take all that with a grain of salt, those numbers, but let’s say they are confidently within the top two or three. Probably top two for, not top number one for gaming, number one or two for e-commerce, depending on what metric you look at. The other thing that jumps out at you, you have to localize most of those businesses to a large degree. If you’re doing e-commerce in Indonesia, That means you’re connecting mostly small local businesses, individuals with Indonesian consumers, very local, local language, local regulations, and a lot of small local shop, I mean, sellers. It’s a lot more like Taobao than T-Mall. And it’s gonna be different in the Philippines, it’s gonna be different in Vietnam, it’s gonna be different in Thailand, all very localized. Now there is some cross border for sure. You can ship things from various regions into there, but a lot of it’s local. And also when you get into gaming, you realize things are local as well. You’re gonna change the language. A lot of these gaming programs that they get into are very multiplayer. So it’s a lot of chatting, it’s a lot of gifting, it’s a lot of e-sports, it’s a lot of that. So that’s all culturally specific, language specific. So there’s a high degree of localization that they bring to the table. market by market that a country, you know, you don’t have that problem in mainland China because everybody speaks Mandarin, everyone’s using Alipay, I mean, there’s a lot of commonality. Well, I mean, Philippines is very different than say Thailand. So that’s kind of interesting. And, you know, of all these digital businesses, most of them have pros and cons. Definitely platform businesses. are superior than product or service businesses, which I’ve sort of said many, many times. But even within that, some platform businesses are more attractive than others. If I had to choose like the three businesses I would most wanna be in anywhere in the world, number one would be e-commerce. You know, there’s a reason Jeff Bezos is Jeff Bezos and Jack Ma is Jack Ma. They were in the best single place at the right time. Second to e-commerce, I’d want to be in online gaming. That’s Tencent. There’s a reason Tencent became Tencent. It’s because of the online gaming empire. And third, I’d want to be in payments. I’d want to be WeChat Pay. Well, C Limited is in three different business lines, e-commerce, online gaming, and payments. They’re literally in the best three businesses I know of. That’s pretty cool. I mean, I don’t think that’s an accident. I think… Whoever does their strategy, I don’t actually know them. I’ve spoken with some of their people recently and there was some discussion about me going down to Singapore and sort of visiting with them, but then Corona took off and who knows. But I don’t know who does their strategy, but that’s who I wanna meet, whoever that is, whether it’s the CEO or I don’t know. I wanna meet that person because somebody is outstanding at what they do. Now their core business is Garena, which is the online gaming. Business, I think this is pretty straightforward, but I wanted to make a couple points on this. So you’re talking about mobile games, you’re talking about PC online, you’re talking about cyber cafes, fine. They’re doing sort of localization by language, by regulation, which can be significant in some of these markets. But, you know, within gaming, there’s kind of a lot. I mean, there’s casual gaming, that’s a phrase you hear a lot, casual gaming. That’s playing. I don’t know, Fruit Ninja, you know, where you slice the fruit on your phone as you’re on the subway. Casual, single player, you buy the game or you just use the game for free and you see some ads, things like that. That’s kind of one extreme. The other extreme is what we’d call immersive gaming. And that’s really where, you know, that’s where Sea Limited, Garena, that’s where they live. They live in immersive gaming and that’s really the word they use. They focus on this. Where you’re dealing with very complicated multiplayer games and the two types they do are MMORPG and MMORPG. MMORPG stands for Massive Multiplayer Online Action Game. So that’s Battle Royale. That’s, you know, we put tens of thousands of people shooting each up on an island and everyone competes. And you can either do it as a massive big game or you can do it more like PUBG, where you have a set number of people, like 50 or 100, you put them all on an island and you compete to kill everybody off and whoever wins, wins. But the key is a lot of the value of those games, those more immersive games is other people being involved. It’s not one person sitting on a subway slicing fruit by themselves on a game. It’s interactive, it’s chatting, it’s, hey, we’re all shooting each other, I’m yelling at you. I see my friends are here. And the more people that play, generally the better it is. And that’s basically a network effect, which I’ll talk about. But when it’s a more immersive game, you know, if you’re looking at a company like NetEase, which is a Chinese online gaming company, they will show hundreds of games that you can choose from. Most of them are free. This is not that. This is a small number of very popular games like World of Warcraft in the US or PUBG or whatever. And so obviously the biggest cost a company like Garena is gonna have is going to be their royalties and licensing fees from a small number of gaming companies like Riot and things like this, that they have to pay them to use their games. So you’re very dependent on those developers for your games. but you get such an immersive experience that what you tend to get is your players play a lot more frequently. They tend to play a lot longer. They tend to spend more money within the game, usually like buying free at items, buying weapons, buying skins, donating money, watching people play. You have competitions and you watch people play because they’re really good. You basically get a higher level of dedication and involvement in these quote unquote immersive games. as opposed to more casual games. Okay, Garena does the immersive games, that’s what they do. Multi, you know, the role playing ones, e-sports, battle arena, things like that. That’s where they focus. And I don’t think that’s accidental. They have a small number of high quality, licensed, very immersive games, and they get a huge amount of engagement. And this is why they’re… their partnership investment from Tencent is so important because Tencent has the best games and the most popular games. And that gets them things like Arena Valor, which is super popular. And they can become the exclusive licensee of those popular games in Southeast Asia. That’s a huge advantage. But the games they’re gonna get are gonna be from Tencent, Riot Electronic Arts, and PUBG. And then they have… I think two self-developed games. So basically they’re licensing these very, very popular games. They’re making them immersive. They’re getting lots of engagement. And that’s their position in the process. Now, if you do well and you get lots of engagement, then you can do e-sports arenas, competitions, which are incredibly popular. You can do leagues, you can do teams, you can do sponsors. There’s a whole lot you can build on top of that, but the kernel at the center of that. is getting the licensed popular games and that’s where their partnership with Tencent comes in. Now that’s also the big weakness because you’re very dependent on having these popular games and the game developers, owners, have a lot of power in this situation and you’re largely dependent on them. Your power is you have the users, their power is they have the popular games and if you lose these popular games, everyone leaves. So that’s the balance of power. Now, one of the ways you sort of maybe get around that or less than that is you start to build a second business, say e-commerce, which is what they did. And over time, you are no longer getting 90 plus percent of your revenue from online gaming, which is what they had two years ago, but you’re getting more of it from e-commerce where it’s hundreds of thousands, if not millions of small sellers on your platform. And that’s what they’ve been doing. And now if you look at their revenue in the last year, 55, 58% of it’s from gaming down from 90% and the other is from e-commerce. So they’re balancing out that dependency by adding another good business. Again, that all strikes me as very, very smart. Okay, so you enter Shopee. Shopee is still a business under development. They’re still losing money on this stuff right now, but they’re getting good growth in their online business and their e-commerce business and their payment business. So all three business lines are growing nicely. The gross profits look good for all of them, but they’re still running at a loss because they’re spending a lot on marketing and things like that. But overall, it looks good. Shopee is basically, it’s like Taobao more or less. Number one downloaded app in Southeast Asia, according to them. Number one in the region by GMV, according to them. It’s your classic marketplace platform. More sellers makes it more valuable to the consumers, more consumers makes it more valuable to the sellers. So you get a network effect, you know, it’s basically Alibaba. And they’re participating in things in like, you know, 1111, all the big shopping holidays. I think the difference here between say, this in Alibaba and China is, it’s just a lot less developed. You know, your average seller is a family. You know, it’s an individual. It’s a small or medium-sized business at best. It’s lots of little tiny sellers all over Indonesia and the Philippines selling out of warehouses and apartments, which is really what Taobao looked like in 2008. And then there’s bigger brands as well, but it’s earlier stage. And the pitch is pretty much the same we know for marketplace platforms, a lot of convenience, big product selection, good price, pretty standard. And this is really still the early days of e-commerce in a lot of these markets. So you’re spending a lot of money building out warehouses, logistics, delivery, basically providing tools to small sellers such that they can have a little shop, I don’t know, in Jakarta and sell things to any island in Indonesia, which is actually quite difficult because you have to use ships and planes. So it’s pretty similar. So a lot of spending upfront, but it’ll pay off in the longterm. Early stages of e-commerce. Now the third business they launch, and that’s basically your standard marketplace platform. The third business they launch is Airpay, which is a payment platform. It supports the e-commerce platform, but it also supports the gaming platform because you give a lot of money to gamers. You maybe buy little weapons and things. Well, if you have your own payment service, like an Alipay, you can use that there as well, which they do. So there’s some nice synergies between all these businesses. They launched that, as I mentioned, 2014 in Thailand and in Vietnam. They’re trying to push that into other markets, but obviously the regulatory aspects are more complicated. Getting acceptance by merchants is more difficult in these smaller markets. The fact that most people don’t have, well, not most people, a lot of consumers don’t have bank accounts. China, the problem in China was not bank accounts. Historically, Chinese consumers all have had bank accounts. What they didn’t have was credit cards, but they did have bank accounts. So when Alipay and WeChat Pay really launched, that’s what they tied to. Well, as you move into the developing economies of Southeast Asia, a lot of people just don’t have bank accounts either. So what you do is you offer them counters in stores. You go into the 7-Eleven and you can pay there. So you have to have these merchants you know, these counters within various local convenience stores and other places, accept payment for you where you can top up. And that’s a pretty standard strategy. You see this in Mexico and Brazil. The problem with that strategy is it means there’s another partner at the table you have to pay. So your costs are higher. There’s another party taking a cut of the commission, which is these stores. Now, in theory, that should fade away with time, but that’s going to be a big issue in a lot of these countries. Jumping to the sort of the so what if you look at their financials basically they look nice I mean they look they look quite good right now their financials are a mix of a You know a fairly successful gaming business and a still emerging e-commerce and payment business But I’ll give you a couple of numbers if you look at their digital entertainment, which is their gaming business 2016 328 million dollars in revenue 2018, two years later, 462. And as a percentage of revenue, as I mentioned, gaming dropped from 95% down to 56%. So even though the revenue is growing in gaming, they’re diversifying into e-commerce. At the same time, e-commerce 2016 was effectively zero. Now it’s about 270 million, which is about 30% of the revenue. So that business is growing nicely. And then if we look at their other stuff, it’s smaller, the payment stuff. So that looks good. And gross profits look fine for those. And when we break it down by country or Taiwan, Vietnam, Indonesia, all of that, basically they’re all growing. I mean, all of them are going up. All lines are pointing in the right direction. Then they’ve got some massive sales and marketing expense, $700 million of marketing expense in 2018, which is huge. So their operating cashflow is negative, but that’s to be expected. That’s not abnormal when you’re building platform business models and you’re still growing them and getting users and activity on the platform. Now if they had negative gross profits, that would be a concern. But if your gross profits are positive and you’re outspending your competitors on sales and marketing expense, and probably logistics is next, that’s what you’d wanna see. That’s a pretty standard strategy. You know, there’s always the chance numbers are not exactly what you think they are, and when people show you numbers that look like you want them to look, you know, you always should be skeptical of those things. There’s a lot of companies out there showing numbers that they think are what people want to see But on first glance, these all look pretty you know, it’s all consistent so far. Okay, so what’s the point of this? we have some interesting lessons here the first one is this idea of You know being sort of a platform company pure breed and we can see a gaming platform, an audience builder. I’m gonna talk about that. We can see a marketplace platform, that’s e-commerce, and we can see a payment platform. That’s pretty nice. And we can see this being done in a region that’s very different than we’ve seen before. This is lots of different countries, geographies, cultures, a lot of localization. That’s not something we saw in China. So that part is definitely different. And we can see this important partnership with Tencent on the gaming side. And that puts them head to head with Lazada, which is owned by Alibaba, which is again an e-commerce giant. So we have two different sort of business models competing. One is gaming plus e-commerce, and one is sort of e-commerce plus payment and financial services, which is more the Alibaba world. So that’s a very interesting competitive dynamic to play out somewhere like. Singapore or Malaysia. And it’ll be fun to see how that works out over time. Now, one of the key concepts for today is what I called the arms race for consumer attention because if you pull their financials, their annual, and you look at the risk section, I always read the risk section first. Like, you can tell a lot by what section of the annual report people read. Like I spend most of my time on the risks and the financials. And when you have a lot of risks that gets my attention. Okay, number one on their list, because these are publicly filed documents with the SEC. So you can’t lie on these, right? You have to be honest. And if you have a risk, you have to disclose it, which is why I like reading things that have to be filed with the SEC. Number one on their list of risks is that they may fail to grow or maintain users and their engagement. That’s the arms raised for consumer attention. Really it’s three things. It’s an arms race for consumer attention, engagement, and spending. And the idea here is what I call the age of it, you know, the age of abundance, that there are so many things we can do now, so many TV shows, so many products. We’re just, we just live in a world of supply and opportunity. You could spend your whole life watching YouTube every day of your life. Supply is not a constraint. The constraint is people only have so much attention, so much time, so much of their wallet to spend. And the fight for user attention, engagement, and spending is becoming more and more aggressive and difficult. And that’s really where most of the fights are won and lost these days. So if we look at their risk section, that’s number one, and they say, look, our risk is that we will fail to add, retain users and engagement. that they have to keep creating more content and services. They have to have high quality content. They have to have the best games. They have to continually increase their technology and capability and features, because if you don’t, you fall behind. There’s a risk that their users will shift to newer games that they don’t have access to. Maybe there’s safety fears. Maybe there’s changing, maybe younger consumers like things that are different than older consumers. So you have to stay on the trends. You have to continually fight that, which is why I call it an arms race, that you always have to stay on the frontier of what people want in terms of technology, products, services, and fight, fight, fight. And if you start to fall behind, you lose people’s attention, and then particularly platform business models, you can collapse quite quickly. But that’s the hardest fight. And if you recall when we talked about sort of marketplace platforms, I gave you all these charts of platforms and network effects. But I always kind of started with this idea of getting demand side scale. That that’s the biggest fight when you build a platform business, when you build anything with digital Asia, digital China, you’re dealing with consumers. It’s always about getting demand side scale. And then after that, you can tend to build out some supply size scale, like, you know, a big network of logistics or warehouses or things like that. But without the demand side scale, you’re kind of dead in the water. And one of the things people worry about so much these days is the fight for users is getting harder and harder and more and more expensive. Especially if you’re one of these businesses like, let’s say Expedia, where whatever the consumer is doing, like renting a hotel or getting a plane ticket, is fairly infrequent. They’re not coming every day to your site to buy a plane ticket. So what they tend to do is they tend to go to Google or they tend to go to Baidu and… you have to basically pay Google or Baidu to refer them to you. And those costs keep going up higher and higher and higher. So infrequent services are a problem. So getting users and then keeping their attention day after day is incredibly important. And it’s becoming a real worry for a lot of businesses. It’s becoming very, very expensive. But I think you get a good idea of Shopee and Garena and how they’re… they’re evolving. It’s a pretty compelling business. And more and more they’re going against, you know, Alibaba and Lazada. And the reason I focus on this fight, as opposed to say Gojek versus Grab, is both of these companies, Lazada and Garena, have cash machines at the center of their business. There’s a lot of businesses where you have a lot of users and activity, but you’re still losing money. One of the reasons Alibaba is so successful is because their e-commerce business Taobao TML is a cash machine, and therefore they can lose money on everything else. Well, online gaming and e-commerce platforms are cash machines. It’s not clear that ride sharing is gonna be a cash machine, although Didi has recently said in the last week that they are making money now. Uber is still not. But we know that online gaming and e-commerce platforms can throw off a huge amount of cash. So that’s why I think these two could be the major players to watch in Southeast Asia. Okay, let’s do some of the theory. Now there’s really three ideas, three concepts that I want you to kind of associate with Shopee. So again, my little trick, if you remember a company associated with the big idea, it’s easy to remember the big idea. So when you hear Shopee, I want you to think complementary platforms. That’s one idea. And I want you to think innovation and audience builder platforms. I’ll explain that. We’ve talked about audience builders before. I’ve kind of said, look, there’s six, seven, depending how you define it, different types of platforms. Some people say there’s two platform business models, which I don’t agree with. Some say there’s 50. I keep about six to seven in my brain. One of them I call audience builders, which is like YouTube and TikTok. Very simple. Your goal of your platform is to get people to come there and watch or engage. And if you do that, they can become an audience for someone who creates content. So the two user groups you have on an audience builder are usually viewers, which are usually consumers, and content creators. So I’m a content creator, so I might go on somewhere like LinkedIn and publish my stuff there because I know there’s a chance to build an audience there because there’s a lot of people on that site and it’s a similar topic. I probably wouldn’t put my stuff up on Facebook, even though I could maybe build an audience there, it’s not a business content platform. And as much as I’d like to go on TikTok because like they’re getting a lot of traffic, I don’t know how to do anything I do in 15 second videos. But the whole point of this is you’re connecting people who create content or companies, big media companies, small media companies, informal media companies, individual creators. you’re connecting them with viewers. So it’s a platform business model that enables linkages, interactions between two user groups, in this case, viewers, content creators. I think that’s most of what online gaming is. I think online gaming traditionally, let’s say if you have a bunch of simple games, you know, like a NetEase where you go on there and there’s a hundred free games you can play. Okay, you’re connecting people who make simple games with people who play games. Fine, that’s the app store. You go on the app store on Google or you go to the app store on iPhone. There’s lots of little free games you can download and then there’s lots of, you know, the viewers and the players and the game players. That’s kind of a, you’re helping those people build audiences, which is what they want. Now there could be some for writing, speaking, music, games. But that’s kind of the metric is how big is your audience. Now that would be true for Garena. Except for the problem with Garena is we’re not doing casual games where you go on Garena and there’s 500 or 1,000 or 10,000 different games you can try. That’s not really what they’re doing. What they’re really doing is these immersive. super popular games which really come from four or five major publishers like Electronic Arts and Riot Games and stuff like that. So they’re not really acting like a platform in that sense. You know if there’s only five groups on one side of the platform it’s not really much of a platform. So what they have so in a certain extent you could say this is a two-sided platform with an indirect network effect between viewers, game players, and content creators, in this case, game developers. And that would be true for a lot of these companies like NetEase. We don’t really see much of that on Garena. More of what we’re seeing on Garena is the one-sided network effect, where we’re seeing you’re playing, we’re playing Battle Arena. You’re playing and I’m playing. And because we’re both playing at the same time, it makes it more fun and we can chat and I can shoot you and you can shoot me and we can do teams and we can do competitions. It’s actually a lot of the most engaging interactions are one-sided. They’re between different players more than between the game developers and the players. So multiplayer, these massive multiplayer role-playing games, these massive multiplayer battle games, they’re actually a mix. of a two-sided platform and a one-sided platform at the same time. And the most compelling interactions are pretty much on one side, where when you have hundreds of thousands of people all building an alternate world, a virtual world with lots of people in cities, that’s a one-sided network effect, where the more people who are building within World of Warcraft, the more fun that world is. And then the two-sided network effect between the game developers and the players is actually much less in that scenario. And I think that’s more powerful. And there’s a lot of engagement, there’s a lot of immersion, but depending what types of games you’re doing, it can be much more of an audience builder between developers and players, or it can be much more of a just interaction between players, or it can be 50-50, depending what you’re talking about. But either way, I put that all under the topic of an audience builder type platform of which there were different types. And this one with Garena is heavily focused on player to player interactions. And the more people playing with me, the more fun it is for me, that’s a network effect. Now, so that’s sort of idea number one for today. Idea number two, when you hear about Garena, this company, C Limited, I want you to think about complimentary platforms. This is the team of Indominus Rex. You know, this is the, I keep repeating myself, the Indominus Rex, it’s the T-Rex plus the Viral Asa wrapper. You put them together, it becomes the super predator of the island from Jurassic Park. It can eat everything. That’s a platform business model. Garena, the online gaming business, is an Indominus Rex. Very powerful in its own right. But then they’ve built the e-commerce platform, Shopee. That’s another Indominus Rex. Now they’re building the payment platform. That’s another Indominus. You have not just one Indominus Rex super predator. You have three of them hunting together. And there’s a lot of benefits between them. And Alibaba has the same thing. Tencent has the same thing. What’s the value of having complementary platforms? Well, I mean, there’s a couple of things that can play out. The most obvious one is. is your IT spending, which is gonna be a big fixed cost, you know, you can leverage that to all your businesses at the same time. So, you know, when they built Garena, they had a lot of servers, a lot of hosting, all that stuff. Well, so they already had a big IT infrastructure they built to host their online gaming. Well, then you can just, you can build your e-commerce platform on top of the same thing. There’s a lot of fixed costs there you can lever into your second business. And then when you build a payment platform, same thing, you can lever that in. So you can definitely spread the fixed costs in IT spending across all three of your businesses because it’s all just software at the end of the day. That’s important. Another big benefit of complimentary platforms is the cost of, the customer acquisition costs, the CAC. If you’re always fighting to get new consumers and you have to spend a lot, you have to market to them, you have to… put ads up on Baidu and Google and Facebook and hope they come to you. Well, if you already have a ton of people on your online gaming business, it’s pretty easy to try and push them over to your e-commerce business. Oh, and when they wanna buy something in your e-commerce business, or they wanna send money within the gaming play, well, you can just say, hey, you can do this with our payment business. So they have dramatically lower customer acquisition costs for each of their three businesses because they can lever it right over. Most businesses can’t do that. You can obviously use the payment system for both of them. You can start to sell things within the gaming business like shirts and hats. Well, that can link you right over to your e-commerce platform. So there’s a lot of ways you can save money between those three. And then of course, there’s always just the idea of money. If you’re making money in your e-commerce business, which Alibaba does, you can take those profits and push them over. into your payment business and just do payments at a loss. PayPal can’t do that because PayPal has to make money in payments. But Alibaba can do payments at a loss until the end of time because they make so much money in e-commerce. So you can start to do games like that which can be pretty devastating. So there’s a lot of sort of benefits to having complementary platforms. One platform business model is amazing. Two is phenomenal. Three is like They’re building three that are all complimentary. Again, whoever’s doing their strategy is really, really impressive. It wouldn’t surprise me if it’s the 10 cent people because they’re really smart. So complimentary platforms, that’s the second idea for today. And the third idea is the arms raised for consumer attention, engagement and spending. Now this is kind of a big idea. I’ve been thinking about this a lot, kind of high level. But I think it’s kind of one of the biggest things happening in the world right now is, you know, we live in what people are increasingly calling the age of abundance. That’s so much of the industrial age, so much of the world of the last hundred years has been about who controls supply, who has the supermarket downtown, who has the three auto dealerships. When you go to the supermarket, there’s only so much shelf space. So whoever has their product on the shelf does better. Coke does better. Why? Because they control shelf space. And there was a lot of power in controlling supply. You know, who’s on television and who’s not. You didn’t have to be super talented to be famous before. You know, back in the seventies, the sixties, there were only three television networks in the United States. If you were in China in 1995, You know, there was pretty much just state TV. So if you were on state TV, you were famous. Why? Because you were on. You didn’t have to be that talented. You know, those days of becoming rich and famous and powerful by virtue of having a commanding position on the supply side of business or entertainment or payment or whatever, you know, those days are coming to an end. I mean, it is, there is just an endless sea of things you can buy now. It’s no longer like going down to the 7-Eleven and there’s 200 SKUs, 300 SKUs of items you can buy. You go on Alibaba and there’s hundreds of thousands of things you can buy. You go down to the bookstore and there used to be 20,000 titles, 10,000 titles. Now you go on Amazon and there’s every book that was ever written that you can buy. And a million more come out every year or some crazy number like that. There’s just an endless sea of content. And how many hours, how many people are making videos on YouTube? It’s absolutely crazy. Like if you look at something like the CW, which is a television network or station in the United States channel, and they have things like Supergirl. Supergirl, which is a television show in the US, has something like 600,000 viewers per week. It’s a big TV show. They spend a huge amount of money making these episodes, even though they’re the CGI is not terribly good, they get 600,000 viewers. Dude, that’s nothing. A good YouTuber should have 400,000 views and this is some dude or lady sitting in their office or bedroom with an iPhone making a short video. That person will get 300,000 views. I mean, it’s ridiculous. Like how many people get 200,000 views now compared. You used to have to be a big movie studio or a TV studio to do that. Now it’s nothing. So it’s just an endless sea of competition, of supply, of content, all of this. So in this age of abundance, the big limiting factor is getting people’s attention and keeping it. And all the indications are it’s getting worse and worse, that the cost of getting someone’s attention. hey, you’re going on a vacation, come to my site and book a hotel through me. It’s getting harder and more expensive to get that because companies like Google and Facebook are getting more powerful on their control of consumers. And it also turns out consumers are getting less and less loyal. This idea of having loyalty programs, hey, sign up for my loyalty card, my membership card. All the numbers are moving down. Consumers. abandoning loyalty to companies in droves. You know forget it if that’s your game plan forget it. It is now a constant fight to get people’s attention to get their time and then to keep it and then if you get it this week well good for you. You have to fight again to get it next week and every time they purchase a pair of sneakers you have to fight again to get their consideration. Please consider buying your sneakers from me. and then to convince them to do it and to thrill them and to make them feel happy about it, all of that is getting harder and harder and harder. And loyalty is just collapsing. So the game is getting harder and more expensive every year. That’s a big problem. And that’s why I call it an arms race. Like these historical arms races between like the United States and say the Soviet Union, where they have a missile, then you need a missile. Then they have better tanks, then you need better tanks. It’s like that, you have to keep upgrading because if one of your competitors gets some ability you don’t have, then you’re in trouble. And the arms race never ends. So that’s kind of the big idea. Now take it down to level to something more useful. There’s a couple smaller ideas within this that I think are more tactical. There’s this good book I’ve recommended in the past called Platform Scale by Sanjit Choudhary. I’m sorry if I’m pronouncing your name wrong, Sanjit. I’ll put the link in the description. It’s a great book. And he has this great section in his book about filters and matching. And how important that is, because consumption is getting harder and harder because there’s so many options now. You go on a webpage and you look for a book, and there’s so many books that how you filter those and then match them. with what the consumer wants is becoming harder and harder. So you really need filters that can make the process of consumption more efficient and more effective. And Google is basically a filter. That’s effectively what a search engine is. It’s a big filter. Airbnb is a process of filtering. As abundance increases, it’s easy for consumers to get lost in the sea of irrelevant stuff. So you need these filters that bring relevance and quality and interest to consumers and do that sort of effective matching. So filters, very, very important. And you can put these in two buckets, push filters and poll filters. The newsfeed of Facebook is a push filter. The newsfeed of Twitter is a push filter. You log in, the newsfeed comes up and they start showing you things. based on what your past actions have indicated, what the social signals are out in their social network, and they’re pushing things to you as a filter. You don’t have to search for anything. That’s their filter, it’s push-based. It’s very passive on your side and they push to you. And the newsfeed never ends. Twitter pushes you things based on timing and relevancy. They don’t push you the favorite things that they think you might have wanted to see over the last year. They push you what’s trending right now. It’s very time-based. And who you choose to follow on Twitter also impacts that a lot. So their filter is push-based on time and who you’ve chosen to follow. Facebook is a push-based filter based on other things. They may push things to you based on your location. Google and Baidu are filters, but they’re poll-based. That you have to put in a search question first. and then indicate your intent. And then based on that, they give it to you. So it’s poll-based. As data gets better, as AI gets better, as algorithms get better, the quality of these filters is advancing quite quickly. And this is part of the arms race. Whatever service you’re doing, if you’re not staying up with the quality of these sort of filters, consumers are gonna be unhappy and they’re gonna shift somewhere else. I mean, keep in mind, Yahoo used to be the big search engine. In 2001, 2002, Yahoo was a very popular search engine. And then Sergey Brin and them came along and came up with a better filter, which was Google. And everybody switched because the results were more compelling to consumers. There was nothing that made consumers switch, but they all chose to because the results of the Google filter were better. If a website, whatever you’re selling, hotel bookings, products, anything, if you’re not matching consumers with your filter in an effective and compelling and high quality way relative to your competitors, people will switch very quickly. So there’s a lot of competition based on the quality of filtering and matching. Another way we can sort of look at the same exact phenomenon, you can look at this in terms of filters and matching, which I think are good terms to think about. The other way you can think about this, which I’ve brought up in past talks, is this idea of curation and customization. Curation, I think it was, I’m gonna say it was it was Chris Tung who was the chief marketing officer of Alibaba. I mean, he was using this word curation all the time. Like every third sentence, we were in this meeting and he was bringing up the word curation over and over and over, which is this idea of the overall experience you have on something like a YouTube or an Alibaba. or a Shopee is the quality of the products that show up. If you log into Shopee and you search for shoes and 80% of what shows up as a result are knockoffs, are fake goods, people are gonna be very unhappy with that and they’re gonna leave your site because they’re gonna feel the quality of the entire experience is poor. This is why fake goods is such a threat to a company like Alibaba because it discounts the whole website. for consumers. So curation is about weeding out low quality goods, fake goods that impact the entire site. Dating sites are famous for this. There is a lot of curation at dating sites because if, particularly women, if they log on to a dating site and like 50 awful guys start hitting on them with these awful crude pictures, they all leave within 30 seconds. You know, the quality… of the people on the site, the quality of the goods, can drive people away very, very quickly. So you have to curate the quality. If YouTube has a bunch of horrific videos of people killing themselves, everyone leaves YouTube. So that process of curation is about filtering out bad quality. That is different than customization. Curation and customization are two different things. Customization is the idea that when I go on Alibaba or Shopee, it knows that I like to buy Nike sneakers and Adidas shoes. I do actually, I like Adidas because I’ve met with them. They’re awesome. Their China CEO, by the way, is just the coolest guy ever. I like Adidas in particular. They know I like Adidas, so they start showing me Adidas and secondarily Nike. That is customizing to me. That is not the same thing as curating out bad quality. Customization is personalization. It’s, you know, I like videos about psychology. I like videos about digital strategy. I like tourism videos. I watch a lot of videos of like travel vloggers. So whenever I log into YouTube, they show me a lot of these things. That’s customization. Those are two different things. These things are often confused with the idea of censorship, that YouTube is deleting certain videos and people call that censorship. Often what they’re doing is curation. If they don’t curate enough people get very upset because children start watching videos of people killing themselves and people are outraged by that. So if they don’t curate enough they get criticized. If they curate too much and start deleting political videos, then people call it censorship and they get angry at that. So they basically yell that no matter what. So it’s a big problem when you’re producing millions of hours of content every hour. How you balance curation versus censorship versus customization at massive scale. This is actually a big problem. So that’s another way to look at this whole abundance, age of abundance question. but different language. A third way to think about this is just data. It turns out all of this filtering, matching, curation, customization, providing a good experience, providing a leading edge experience for consumers, winning the arms race, staying on the frontier. It turns out all of that hinges on data. Whoever has the best data, the most complete data, behavioral data, can provide a better experience than others. Turns out that’s kind of the key thing in all of this. You can’t do matching in any way, shape or form without data, you can’t do it. So a lot of this is this arms race for consumer attention, spending time, it’s a fight for data. And then you start to run algorithms against that data on a personal one by one basis. And that provides the different experience. So a lot of this, you can just think, look, it’s a fight for data. And the people that have the best data are the big platform businesses like Shopee and Alibaba. And brands and merchants like L’Oreal and Nike are fighting to get data. And they can get some of it from Alibaba, but Alibaba doesn’t give them a lot of it. They might give them sales data, they might give them demographic data. But really what you want is behavioral data and they don’t tend to share that. So a lot of this fight, it’s about a fight for data. One last point within this. The word I use a lot is you have to thrill and overwhelm consumers now. You have to do everything I just said. Provide good services, curate, customize, good data, all of that. Look, at the end of the day, you have to thrill people. Being good is not enough anymore. Being six out of ten is not good enough anymore. You have to be a nine out of ten or a ten out of ten in whatever you are doing. or it’s just not good enough. So pick something you’re good at, pick something where you think you’re better than everybody else or you could be better than everyone else, pick something where there’s a depth to it, if you’re just a really good looking person, a good looking man or woman selling makeup, okay, that’s good, but just being an attractive person might get you some views in the short term. It tends to fade pretty quick and people move on. Pick something like where you’re obsessed with it, and you think you can be good at it. I mean, why do you think I talk about digital strategy? It’s because I’m totally obsessed with this subject. It’s all I think about. I don’t think about other things in life other than competition, digital strategy. It’s all I do. Well, I do a little others, but basically nothing else. So I think I should plant my flag there and try and overwhelm people and thrill people within this because, well. There is a lot of thinking here and it’s all I do. So, okay, if I’m gonna hit nine out of 10 of anything in life, it’s gonna be this. So you gotta sort of overwhelm and thrill people. And I think that’s pretty critical in all of this. Otherwise, you know, good luck. So I think that’s the theory for today. I’m kind of repeating myself at this point. The three big ideas I want you to think about, just to repeat, innovation, audience builder, platforms. That’s a different type of platform. We’ve talked about marketplace platforms, which Shopee has is building. Payment platforms, which we talked about with Ant Financial. Shopee is building that as well, or Garena C Limited is building that. But really their core platform has been an audience builder platform in gaming. But they have tilted themselves way over to one side of the most immersive and engaging aspect of gaming, which is these multiplayer, massive multiplayer games. I think that’s a very strong position to be in if your goal is to get engagement within people. Get engagement. If the fight in an age of abundance is for the time and attention and engagement of people, focusing on the most immersive games is a good strategy. So that’s idea number one. Idea number two, complementary platforms. an e-commerce platform plus an online gaming platform plus a payment platform, which is C-limited, that’s an awesome set of cards to be playing. It’s hard to think of a better hand than that. Tencent has an amazing hand, Alibaba has an amazing hand. If they pull this off in Southeast Asia, that’s an amazing hand. And then the third idea is because we live in the age of abundance, there is this increasingly intensive arms race for consumer attention, engagement, and spending. And you really have to have an answer for how you’re gonna win that because it’s getting harder and harder and harder. My default answer is you gotta thrill people. You have to overwhelm people. Being okay is just not enough and you have to have data. If you don’t have those two things, life is gonna get harder and harder. And that’s pretty it. I think those are the three ideas for today. Those three ideas are gonna go under Learning Goal 12 for those of you who are subscribers and following the course schedule. That’s gonna go under Learning Goal, I’m sorry, Learning Goal 20, which is Intro to Shopee and Audience Builder Platforms. Which brings us back to the question for today. How will Shopee and Tencent, because they’re really tied together, can they beat… Lazada and Alibaba tied together in Southeast Asia. And I don’t know. It’s an awesome fight to watch because they are both amazingly effective companies with really robust capabilities, but they do have different strategies. They have different compositions of platform business models, but they’re both going after these seven different. local economies scattered across Southeast Asia. And we’re just in round one of this fight. So I think this is gonna be amazing. It’s super cool. And it’s worth following closely. And I’m gonna keep doing that and I’ll update you as I see them sort of fighting it out over the next year or so, but it’s great. If you have thoughts on this, you know, if you have an answer, take a guess, what do you think? I can guess, but I don’t know. If you have an answer, scribble it down. Now, if you were called into your boss’s office or told by a client, come in here and give me five minutes. What do you think’s gonna happen between C Limited and Lazada in Southeast Asia? What do you think’s gonna happen in the next year? What would you say? I mean, the whole point of this class is to learn to see around the corner a little bit further than other people. What would be your pitch? Take a couple of minutes, do that right now. Write down two to three paragraphs. What do you think is the most important thing to watch within these two companies? Who do you think’s gonna win? Okay, so do that now, pause the tape, and then please come back. So that’s pretty much what I have for you today. I think that’s enough theory for one day. I’m still hanging out here in Bangkok. It looks like the borders are finally reopening. Flights are starting to move back and forth domestically and hopefully cross borders soon. And I got… Word that China is going to be opening its borders to foreigners in the next couple weeks, maybe. Maybe end of May at the latest, everything will be open. So I will be back on the road, which is fantastic. I literally don’t think I have ever been sort of grounded in one location for three months. In like two decades, maybe 15 years. I mean, it’s just not my my way of living. It’s very strange. Some good TV stuff to recommend if you haven’t seen. Elon Musk just did another interview with Joe Rogan, which is available on YouTube and everywhere else, which is great. Like I’m a big Joe Rogan fan, like like one, his views are incredible. Like like Hollywood stars think they get traffic like Joe Rogan gets more than all of them. I think he gets 60 million listens on his podcast or something. It’s crazy. Anyways, he sits down with people like Elon Musk and others and they have good conversations. And I find that interesting because I like Elon Musk. The more I learn about this guy, the more I just think he’s cool. Because he’s not perfect. Like he’s obviously unbelievably effective and smart and does things that are just amazing. But he’s not perfect. He does screwy stuff. He messes up. He has relationship problems. He’s… He says funny things sometimes and he’s a little vain. You know, he’s got the hair plugs. Everyone forgets that guy was pretty much, his hair was gone at like age 25. Now he’s got this thick mane. So he’s got a little bit of insecurity there. I mean, that’s good. Like, you know, I find it nice when people who are really effective also have problems of some kind and aren’t supermen and are superwomen, yikes. I find that nice. So one of the things they talked about on the podcast was that he’s selling all his possessions. This was in the news. Like he’s selling all his possessions. He’s put like a couple of his houses on the market already and he says, you know, possessions just weigh you down. This was I think the quote, possessions weigh you down. Like, I’m sorry, that sounds like a not, that sounds like a lie. Like if you had a buddy or a friend or a colleague at work and they said, oh yeah, he’s selling all his possessions. What would be your go-to explanation for why your friend or colleague from work is selling all their possessions and he says, I’m gonna sell all my houses, I’m gonna rent a small apartment. Like the go-to explanation is, that guy’s having money problems. That’s the reasonable explanation. If someone sells all their stuff, it’s because of cash flow. Like, nine times out of 10. You know, this exotic explanation of, oh, it’s good for my psyche, and it lets me focus on my work, and they weigh me down. No, the obvious explanation is money problems. So I didn’t buy that at all. And then it turns out, like, there’s some issues with him retaining. ownership of his companies. If he gets below a certain percentage, he loses control. So he could very easily be a really rich guy who also happens to have money problems, like cash flow problems. And so the solution is you dump your expenses, you dump all of that and you live lean, but you keep control of your companies. I bet you that’s what’s really going on. It’s a guess, but I’m calling BS on this. I think it’s like he’s going to So he doesn’t need much cash and that way his ownership of you know SpaceX and whatever is is not challengeable anyways, we’ll see what the truth is but You know, it’s I didn’t buy it. We’ll see but anyways, it’s a great interview very very interesting another little fun takeaway Was they they always talk about his how his cars have unbelievable acceleration because electric cars don’t have you know, there’s no the gas the the gas injects into the engine it ignites and then the wheels turn slowly after no I mean electric is there’s no delay right you press the pedal and the wheels turn immediately without any sort of delay so you get this unreal acceleration basically it’s faster than falling that was his quote like you can accelerate in a Tesla faster than jumping out of a plane and falling apparently like they’ve got some funny thing they’ve done where the car you put it in a certain mode and the car like tilts back on the left on the back wheels the same way like if you were going to accelerate in a race as a runner, you would you would get down on your hands and knees and sort of pivot back and then launch forward. I guess the car can do that like it pivots on its back wheels and it lifts up its front and then it jumps forward like a runner like it’s just crazy the stuff they do. I love listening to this guy anyways. Go watch it, it’s a couple hours, it’s fantastic. Really just amazing guy and totally inspirational. Not because he’s a Superman, although he does super things. It’s because he’s a regular guy with problems who then does amazing things as well. And I find that a much more inspirational story. So anyways, that’s my recommendation for the week. But that’s it from me. So please everyone have a great week. Stay safe, keep masking up. I’ve been talking to my sort of doctor friends who are treating a lot of COVID patients. The answer I’m getting, the inclination I’m getting is this thing is both not as big a deal as we’ve made of it and also more serious than we’ve made of it at the same time. For the vast majority of people, it’s not a big deal. But for the people who get it… it’s actually very, very serious very, very quickly. Like my friend sent me a note the other day, he was treating people in an emergency room. And he sees these COVID patients and then, you know, he treats them and he intubates them and he does all of that. And his comment to me was, I had a patient who was sitting in the ER, breathing normally, tested positive for COVID. One hour later, we had to intubate him, basically put him on a ventilator. It happened that fast. One hour from. everything’s fine to, we got to tube him and ventilate this person immediately. I mean, that’s really, really fast for respiratory like decompensation. So this thing is all like, it’s not as big a deal as everyone thinks and it’s also scarier than everyone thinks at the same time, depending if unfortunately, if you or someone you care about or know gets the bad version of this, then you got to go into panic mode immediately because it is really serious in that scenario. Otherwise it’s like, yeah, put on a mask, walk around, So it’s a weird dichotomy of like don’t worry too much up until a point and then over worry and be more panicked than people think you should be, which is a weird balance. Anyways, that’s how I’m thinking about it. That’s kind of what I’m telling my parents these days. But that’s it. Have a great week and I will talk to you next week.