In this class, I talk about Meituan and the evolution toward more advanced types of services marketplaces.

You can listen here or at iTunes, Google Podcasts and Himalaya.

What Should Meituan Do?:

1. Geographic expansion
2. Focus on transportation services (i.e., Didi)
3. Focus on hospitality services (i.e., Ctrip)
4. Jump into an ancillary opportunity: Financial Services or Cloud Services
5. Advance into more complicated services (i.e., market networks)

The previous podcast on the subject is:

• Meituan vs. Ctrip vs. Alibaba: Who Will Win in China Services? (Jeff’s Asia Tech Class – Podcast 22)

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Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the question for today’s class, how should Meituan compete with Alibaba going forward? I mean, what should they do next as sort of one of the leading services, marketplaces of China, Asia? And for those of you who are subscribers and following on, this is really sort of a continuation of podcast 22. This is number 27. But on 22, we talked a lot about services marketplaces as opposed to a marketplace for products like buying and selling phones and stuff. But for services, transportation, hotels, airplane flights, restaurants, food delivery. When you build a marketplace for services, how should this evolve over time? And in podcast 22, we talked a lot about sort of C-Trip which does hotels, hospitality. versus DD, which does transportation services versus Alibaba, which does everything, versus Matewan. That was kind of the intro to this subject and some of the theory behind how you build a platform business model for services. This is kind of taking that further. This is a little bit more intermediate, some more advanced ideas taking you a bit forward. So if you haven’t listened to that one yet, that’s probably worth listening to, but not necessary, but I’ll put the link to that down below. and I’ll review it a little bit as well. So that’ll be the topic for today. And we’ll do this more as a business case, which is I’m gonna ask you what you would do. I’ll give you some options and then you’ll have to kind of make the call. And then I’ll tell you what my thinking is. So we’ll do this more as a typical business case. Okay, so let’s do that. But first, if you haven’t subscribed, please do so. You can go over to jefftausen.com. Sign up there for the Asia Tech class. There’s a 30 day free subscription, free trial, and you can try it out, see what you like. But basically it’s a lot more content and a more structured approach to, here’s what we’re doing today, here’s what we’re doing tomorrow, here’s the main ideas, here’s the ideas you wanna build in your head over time so that you progress week after week, month after month, and you get smarter and smarter. I mean, at the end of the day, this is a course. My goal is to make you systematically smarter. And my experience after almost a decade of teaching at various MBA programs and executive programs is getting smarter on a complicated subject is basically a long walk. You learn a little bit every week, you have a guide or a teacher or a trainer, whatever, and then you make step-by-step progress and that really adds up over time. And that’s how you build expertise in complicated ideas. Now, simple ideas, you don’t have to do that, but for complicated skills like digital strategy, That in my experience is the best process. So that course basically lays out that process over four levels. We’ve got about 17 learning goals laid out now. That’s gonna go up to 20 or 30 very quickly. And it’ll really be about, you know, anywhere from six to nine months to a year of sort of systematic process. That’s how it’s laid out. Anyways, you can go over to jeffthousen.com, sign up there and you’ll get the whole picture. Okay, let’s get into the question. Now in the… Last podcast on this, we kind of went through the basics of services marketplaces and we teed up these companies which are important to know, Alibaba, Meituan, Ctrip, Didi, both because they’re kind of on the frontier of this in China, which really puts them in the frontier everywhere. I mean, it’s just, I hate to say it, it’s better. I’m an American. It’s better than anything in the West. It just is. The food delivery. the ability to order services, make reservations, get rides, bicycles, scooters, all of it. It’s just further down the field, further, it’s evolved faster. And it has a lot to do with, you know, the digital China and digital Asia, which is really pretty similar. You know, it’s moving rapidly, there’s a lot of ferocious competition, and then we have something here that we don’t see in the West, is we have a massive population of low-cost labor. That’s people who give rides in cars and deliver things on scooters and come to your house and cut your hair and all of those things. I mean, you don’t really have that in a lot of parts of the world. And then the other thing Asia has going for it is there’s a tremendous density of urban centers. You know, the number of cities in China with over a million people is like, I keep forgetting, it’s like 200. I mean, it’s absolutely crazy. And that’s not just a Chinese thing. That is pretty much an Asia thing. You’ve got such urban density that a lot of the business models work that don’t work, let’s say in the suburbs of Northern California. So there’s a lot of reasons why services are so robust and getting so good in this part of the world. And they sort of start in China, but they expand very rapidly to Thailand, Singapore, Myanmar, and all these places, in India especially. Okay, so within this basic review of that, I said, look, A marketplace, it’s a digital platform business model. Digital platform, we have more than one user group, and the primary purpose of the platform is to enable transactions, interactions between different user groups. And we could call that a lowering of coordination costs if you wanna get technical, but you can find people to buy stuff from, you can find people to cut your hair, you can find people to chat with, videos to watch. I mean, you’re enabling interactions is what you’re doing. And… You know, marketplaces are one type of digital platform, but we’ve talked about some others in this course. We’ve talked about collaboration coordination platforms. We’ve talked about audience builder platforms, a little bit about payment platforms. I mean, there’s, I usually keep a list of about seven different types. Marketplaces, usually people think about products. I’m gonna buy a pair of shoes online. We’re gonna buy some clothes. We hook up with a merchant or retailer or brand. We buy the thing, it gets shipped. and that’s a product marketplace, but services marketplaces are more like, I’m gonna order dinner, I’m gonna get my hair cut, I’m gonna buy movie tickets, I’m going to get a ride, I’m gonna rent a bicycle, services. Now, services marketplaces are actually pretty different, and I pointed out some of the differences between companies like DDC, Tripp, Meituan, Alibaba, and the interesting thing about these companies is they’re all going after the same space. We have lots of different types of companies, all sort of going after local services right now. It’s kind of a battle royale on the ground. It’s pretty great for those of us who live in Asia because you get a lot of free stuff. But the factors I pointed out, the learning goals of the last talk, I basically outlined four things to look for, four main concepts. One was this idea of just a marketplace platform. where usually a platform tends to be more robust the more users, frequency and data you get. And certain platforms like ordering dinner, services like ordering dinner is a lot more frequent than let’s say renting or getting a hotel because you don’t travel as much as you eat. So certain services are very high frequency like riding bicycles, ordering food. Doesn’t mean they’re lucrative, but you get more user activity, which is valuable in building a platform. Other things like plane tickets, hotels, are actually more lucrative, but they’re low frequency. So you have to kind of think about what type of service you’re putting on the platform. You want to think about whether it’s fragmented or consolidated. Hotels are very fragmented, tons of hotels in every little city. Buying an airline ticket, not so much. There’s only so many airline companies that sell tickets. And so we looked at sort of marketplaces, the types, and then we looked at network effects. Obviously some, you know. the more on one side of the platform makes it more valuable to the other and vice versa. Some network effects are very local, like getting a ride to work. Transportation tends to be pretty local. Hotels tends to be pretty international or at least regional. You know, you want hotels available everywhere you might go. That effect is more linear as opposed to asymptotic. Switching costs, that when you get certain people on your platform, it’s very hard to leave. Very hard to get restaurants to switch once they’ve got their software plugged into your system and you’re giving them 30% of their revenue per night. Very hard for them to switch. Drivers on the meanwhile, they will switch between DD or Uber or Lyft like it’s nothing. So switching costs matter. And then the fourth idea from the last talk was bundling. that bundling is a fairly powerful economic move. Instead of buying one TV show, you buy Netflix and you get a massive bundle of shows you can watch whenever you want for one fixed price. My Netflix bill, which I’m very proud of, is now, I just got it, it’s $4.32. That’s how much I pay for Netflix per month. Because I always sign up when I travel to funny countries and I sign up locally. So in Columbia or Rio or somewhere like that. and I keep driving it down lower and lower. So it used to be six bucks, I’ve wheedled it down to 432, which I feel really good about. I don’t know why. Anyways, this idea of bundling things together. Well, if you bundle services like, C-Trip always wants you to bundle the hotel and the flight together. Every time you log into that place, they’ll try and get you to bundle. Well, Alibaba is starting to bundle products to services together where you buy the makeup and then someone comes and applies it. So that’s kind of a really… ideas, bundling products and services. But those were the four key concepts I wanted you to learn from the last talk, which was marketplace platforms, network effects, switching costs, and bundling. There’s a lot of other stuff, but that was kind of the main takeaways. Now the question I asked you last time was, you know, how should these companies compete? Meituan versus Alibaba versus DD versus Ctrip. And it was, it’s kind of muddy. I mean, that was my answer. It’s kind of muddy. All of them have strengths, all of them have weaknesses. It’s hard to tell who’s gonna win. But there was another idea which was, look, this is also because the sector itself is evolving. It’s not just that, okay, we have different types of business models with different strengths and weaknesses and they’re competing. The entire idea of services is changing, it’s evolving. And you can almost kind of look at a timeline that like, you know, C-Trip was kind of. Now, C-Trip was founded back in 2002, I believe. No, I’m sorry, 1999 maybe, in the Republican 2002. This was kind of like online services tourism 1.0, where they were a really strong contrast to a traditional tourist company, tourist agency, where you might buy a ticket or you might rent a hotel. They were an online version and they had some pretty powerful strengths relative to that. So that’s kind of like 1.0 in my book. But then May Tuan comes along, and even today, like the CEO of C-Trip, Jane Sung, she will often be asked, are you gonna offer services outside of tourism and hospitality? Which is, you know, hotels, trains, planes, some experiences like tour guides, but mostly just hotels, planes, and trains. And she always says, no, we’re a hospitality and tourism company. I’m like, that’s really maybe outdated thinking, that idea that you sit in a certain industry and that’s where you stay. I mean, to some degree, that definition itself, hospitality, that may be an obsolete idea. It may be something that was a historical thing that now no longer makes sense. And so then you get Meituan that comes along. I mean, Meituan was founded 2010. Meituan is one of my favorite companies. It’s really just a cool company because they’re so aggressive. They’re so sort of quick on their feet and they launch things and they move and they bob and they weave and you know they’re always doing stuff and they’re fun to watch. They have their headquarters is up in northeastern Beijing. Most of the cool tech companies are not in downtown Beijing. You have to go sort of go out but beyond the third ring road. You know now we’re at the fifth ring road but downtown is at the CBD then there’s second ring road, third ring road, fourth ring road, fifth ring road. As you get out beyond the third and the fourth ring road, you have these nicer districts that have been built. And up in the Northeast is, you know, there’s a really nice business park where Maytwan is based. And I went up there and I met with them a year, two years ago, and sort of did a little tour of their staff and I’m sorry, their facility and talked to some people and got a sense for what they were doing. Really interesting company. And shortly after they bought Mobike, the bike sharing company. interesting jump into that business and they’ve jumped into ride sharing. They opened some of that in Shanghai but they closed it mostly down. You know they’re always bobbing and weaving and they’ve jumped into hotels. They’re doing very well in hotels. Anyway so founded 2010 by Wan Xing who’s kind of this famous guy you should know. They started out as a copy of Groupon you know where you get a voucher and then you and your friends can all buy something together. Group buying hence Groupon. And, you know, Wan Xing was sort of famous for this. This was his third, you know, sort of version of this strategy where he would see something in the West, copy it, and then innovate from there very quickly. So, you know, he founded Xiaone, which was 2005-ish. I don’t have the date right, but it’s about there, which was basically a copy of Facebook. And he sort of built that up and, you know, had some problems and, you know, I think he did a little bit all right financially, but definitely sort of… Exited and then he did fanfo which was a copy of Twitter same stories. This was his third attempt when he founded Maitwan, you know as a copy of Groupon and he got a lot smarter. I mean he basically learned all the dirty tricks There’s a lot of dirty tricks that happen in this business like really on screen scraping False rumors putting up fake reviews stealing people, you know making your your product incompatible there is, we’ll do a class on this at some point of like dirty tricks. And you really do have to be aware of this stuff because otherwise you’ll be like, what’s going on? And he’s very wise to all the dirty tricks. So he’s sort of very street wise is how I think about him. So this was his third one. And they jumped into this space. Literally, they always say it’s the war of a thousand group bonds. I don’t know if it was actually a thousand companies but there was like. a huge number of companies that jumped into this space in China. It was absolutely brutal. Everyone fought, everyone played dirty, everyone raised money. And when the dust settled, like all the gladiators were dead in the arena, Mei Tuan Wan Xing was still standing. So it was pretty clever. That’s why you don’t compete with a guy like that. Anyways, and then they merged up with Dian Ping, which is more like a review site, like a trip advisor. And then they added hotels and restaurants and bikes. You know, that’s the company. It’s really a fun company to watch. And that’s kind of how they, you know, evolved. And then they went public and which basically showed their financials, which showed that they were very unprofitable. And one of the senior executives, I won’t say the name, but one of the, let’s say top two executives at one of the top three internet companies of China basically told me like, look. you know, we’re competing with this company, Meituan, we won’t let them get too cashflow positive because we can see their numbers, their unit economics are negative, we’ll just keep spending money and pummel them. And now that you’re a public company, it’s very hard to hide that and investors don’t like it when you lose money forever. Seems like you can get away with that as a private company for a very long time, but not as long as a public. Now, so everyone thought, oh my God, they’re in trouble. They went public, we saw the numbers. And within six months to a year, they kind of got close to operating profitability and it really stunned people. Wow, that was very impressive. And what they did was they basically became a full suite of services. So some of the services were very high frequency and frequently used, which gets you a lot of activity on your platform, like riding a bicycle, like delivering food, high frequency, but you don’t really make money on those. And then they paired those with profitable, low frequency services like booking a hotel reservation or booking a restaurant reservation, which actually is very profitable. C-Trip, that’s what C-Trip does. They book hotels mostly. Now they’ve got a good 10% operating profit. They’ve been profitable for years and years. So by pairing, you know, high frequency, low profitability services, and even losing services with high profitability in frequent services, they got to profitability. Very good strategy. very sort of like services 2.0. And that was kind of the story. And then they’re up against Ctrip, and then you have Didi that jumps in here as well. And then you have Alibaba that very openly says the future of Alibaba is e-commerce for products, entertainment, and local services. That’s the three pillars of their growth. Now they also have Ant Financial and other stuff, but that’s kind of their main story. So it’s a free for all and services. Okay. So against that, The question I want to tee up for you is, what should Maytwan do? I mean, their biggest competitor is Alibaba, no question. What should they do to compete with them going forward such that one years, two years, three years from now, they’re in good shape as opposed to worse shape? You know, you want to see down the road a little bit, see around the corner a little bit. You know, what is the next generation of services marketplace is going to look like? And I will give you basically a couple options on this. Let’s say option number one, keep doing what you’re doing. I’m gonna put these are in the show notes. So I want you to make a choice. What would be your number one strategy? Because you can’t do everything, you gotta place your bets. Let’s say option number one, geographic expansion, which basically means we’re gonna keep the services we do today. We’re just gonna do them in more places. Generally that’s really good advice is either do a new service or do a new geography, but don’t do a new service and a new geography at the same time. So this is do the services you’re doing today, just do them in a new location. Go to the far west of China, go to Southeast Asia, make a major play for Indonesia, make a major play for India, expand what you’re doing geographically, but stay the course. Call that option number one. keep what we’re doing in China, keep our main suite of services, but let’s target a competitor and point all our guns and try and take their business. And so option number two will say, let’s go after DD. Let’s go after transportation, ride sharing. We have bicycles, they already have that. Let’s go after ride sharing, buses, metro, integrated transportation solutions. Let’s go head to head with DD and that’s the game. Okay, option number three, same idea, but let’s turn our guns on C-Trip. Let’s just try and take the hospitality, tourism, flights business and take most of that market. Option number three. Option number four, let’s focus on ancillary services. So we’re gonna keep the suites of service we’re in. We’re gonna keep the geographies. We’re gonna build out ancillary services like payment. You know, they have a payment service. We’re gonna build out finance, credit. credit for restaurants, credit for merchants that we deal with, credit for consumers. We’re going to build a sort of Maituan finance business the same way JD built JD Finance, Alibaba and financial. We’re going to try and build that as a separate business. Maybe we’ll get a private banking license, something like that. Or the other one we could do as an ancillary service is we could build out a cloud business. Cloud is a both financial services and cloud are. big, big opportunities in their own right. Let’s make a play for cloud. There’s three major cloud players of China, just like there’s three in the United States. Let’s be number four. Okay, so ancillary play. And number five, last option. Let’s move into the next generation of services, which we’ll call managed marketplaces or market networks. And I’ll give you some theory on that. So those are the five options. Let’s take a minute and just pause the recording, make a bet. What would you do if you were called by the vice president or the CEO? Wanxing calls you. I hear you’re really smart about this. Come down the hall, you get three minutes. Give me your best pitch. What should I do? Which is kind of what a lot of management consulting is about. So take your best shot. Option one, geographic expansion. Option two, target the transportation sector. Number three, target C-Trip hospitality. Number four, go into ancillary services, either financial services or cloud. Number five, go into next generation, more advanced services, which I haven’t really explained to you. So pause now, pick one of the five, then please come back. Okay, are you back? I never really know if people are pausing. Okay, let me give you some more theory now. Now, I’m gonna talk about option number five, which is this idea of what is the next generation of services marketplaces? And I’ll give you two ways of thinking about this. And these are the main concepts for today, market networks and managed marketplaces, which is, I’ll explain those in a sec, but those are the two key concepts for today. I want you to remember. Okay, now Andreessen Horowitz, one of the rock star Silicon Valley venture capital firms, they publish a bunch of stuff, a lot of interesting. They wrote an little article not too long ago called The Evolution of Marketplaces for Services, and they laid out like four different phases, which I don’t totally agree with, but I think it’s useful as a framework just to think about it. And they basically said, When you build a marketplace, a digital platform, to connect services with consumers, they are inherently more complicated and difficult than for products. They’re just different animals. And you can immediately start to point to differences. Like number one, it’s actually kind of hard to standardize a service. If I’m buying an iPhone online, I know what an iPhone is. If I’m buying sneakers, we kind of all agree with what sneakers are. If I’m ordering a deep clean, for my carpets of my apartment. What does that mean? Is there a definition for that? Ruin does deep clean, do we really know what that is? Do I know if it’s quality? Do I know if it’s detergent? I mean, it’s not totally, what if we say childcare? I wanna hire a babysitter. Do we really know what that means? I mean, it’s not totally clear how you put these into standard sort of definitions like shoes, cups, iPhone, iPad, all of that stuff. And even if you can put them into buckets, definitions, how do you measure them? Okay, if the iPhone works, fine, it works. It either works or it’s busted. Maybe it has a warranty. How do I measure the quality of a haircut? How do I measure the quality of getting food? And this restaurant’s food versus that restaurant’s food. I mean, a lot of the quality assessment is kind of personal, and it’s also sort of hard to measure. Anyways, I may like it, but you may not. I may hire someone to come clean my home or cook for me or whatever, and I may like the person personally, and maybe you don’t. And maybe I like the food and maybe you don’t. I mean, there’s a lot of qualitative aspects that are very hard to get really good recommendations on. And the things we use when we talk about products are reviews, recommendations, personalization. I know you like these type of sneakers. I like these type of sneakers. So when you go into Alibaba, you see a lot of Nike and Adidas, but I see a lot of Reeboks. Okay. recommendations, personalization, reviews, that’s all harder to do when you’re talking about services. So a lot of our common approach to marketplaces, it’s not that easy. Now I come out of a healthcare background and healthcare is famous for this. For as long as I can remember, there’s been this argument that, you know, healthcare is expensive, but if we standardize quality and we measure quality, then people can make the choice between quality and cost. quality and price and we can be better shoppers and they create these huge government institutions to measure quality in health care and insurance companies spend billions of dollars trying to measure health care and it’s almost impossible. It’s really it’s just too complicated of a thing. It’s like trying to measure the quality of a lawyer and you know well it kind of depends on the person and it depends on what your situation it is and depends on what case you’re dealing with and it’s been You know, you end up trusting the person because it’s just too complicated. So, you know, we’ve been talking about fairly simple services, like get a ride to the airport, buy dinner. Once we move into more advanced services, and this is option number five, it all gets much harder. Suddenly you’re talking about what, you know, I want a chiropractor, I want someone to cut my hair, I want someone to teach my kid Japanese, I want something, you know, that’s all much, much harder to measure. And healthcare is like the most difficult. Forget it. You wanna find a good doctor, ask your friend. That’s the only thing that really works. And you like your doctor? Yeah, yeah, okay. But these metrics are almost meaningless unless someone’s totally incompetent. They’re actually pretty good at catching outliers and totally incompetent people. But short of that, it really doesn’t tell you good versus great at all. Okay. The other issue we have is once you’re talking about services, these things pretty much take place in the real world. If you’re buying a pair of shoes online or buying makeup, okay, you’re on the webpage, you buy the shoes, it gets delivered to you. It all kind of happens online and in warehouses. But services immediately sort of take you out into the real world where someone’s gonna cut your hair, do your makeup, cook your dinner, give you a ride. Suddenly you’re actually meeting the person in the real world, because that’s usually where the service takes place. Now you can buy some services online, you can buy online design work and online. book covers and editing and all that. But a lot of these services put you into the real world and you don’t need the online platform anymore. Once you have the person who’s cleaning your apartment, you don’t really need the online platform anymore once you’ve met the person. You can just kind of deal with them on your own. So it shifts it into the real world, which is a problem. And then there’s this issue of what we call criticality, which is some services are basic. It’s fine, get dinner, no problem. Other services are, you know, who are you gonna have do, you know, caring for your child while you’re away at work? Because it runs into this issue of what if something goes wrong? What is the penalty? What is the cost if something bad happens? Well, if someone cuts your hair badly, it’s not a big deal. If you have a bad driver, okay, you, you know, well, actually driving has had some, let’s say outside of really dangerous situations. You know what, if you have a medium bad experience, what’s the impact? Well, yeah, sometimes it can be pretty severe and you have to worry about those things in a way you don’t have to worry about buying sunglasses online. If you have a bad experience there, it’s not that bad. So how critical is the service? Surgery, childcare, preparing a legal contract, preparing a will. I mean, what if someone messes those things up? The cost of that can be very, very high. Anyways, so there’s all these things that play out once you’re talking about services that if you build a marketplace platform for services, you have to start to deal with all of that. And it’s actually pretty hard. Services platforms are difficult. Anyways, so this is Andreessen Horowitz thinking, but basically what they then said is like, there’s been at least three to four eras of services so far. We had the Craigslist era, which was like the 1990s, early 2000, which was if you’re in Asia, you probably maybe don’t know Craigslist. Craigslist is like the champion of missed opportunities. There was just this webpage put together by a guy named Craig. Do you need housing? Do you need a job? Do you wanna buy my car? Do you need a date? And it looks just basically like the yellow pages. And it’s this crude webpage, and you just run down the list of all the people who wanna date, and all the people who are selling cars, and all the people who are renting their apartments, and you are just on your own. It is buyer beware. You know, you have to, all you basically get is the listing, a little bit of information and a contact number that you contact by email, you call them up, maybe you get taken, maybe it’s good, it’s all on you. I mean, that was kind of like the most basic information and Craigslist offered very little information other than the listing. No guarantees, no protections, no nada. But they did very well for a while and then. five years later, over the next really 10 years, we had sort of what they call the unbundling of Craigslist era, where this is where Craigslist really messed up. Like Craigslist was sort of the mother of missed opportunities, or the champion of missed opportunities, because business after business was based on the idea, let’s just take that part of Craigslist and pull it out and turn it into a new company. So let’s do childcare. Instead of looking on Craigslist, we’ll create the company care.com. which became a place where you can find someone to do childcare. Instead of doing housing on Craigslist, you did Airbnb and Zillow. Instead of dating on Craigslist, you did Tinder. Instead of finding a job on Craigslist, you did ZipRecruiter. I mean, it was like all of these companies just pulled out and Craigslist just missed opportunity after opportunity. And generally what these sites offered was a list of providers plus some matching plus some degree of trust and protection so that you could trust them. which is something Craigslist never offered. That’s the unbundling era. We get to 2010, they call it era number three, on demand services. This is really when smartphones come onto the scene and suddenly you can get things immediately. I’m walking down the street, I need a ride. I can use my smartphone and get a ride immediately. You know, Uber, DD, Airbnb, get someone to come fix my toilet that just started leaking. I can call someone immediately. It’s sort of on-demand services. So it’s a lot like unbundling. It’s just because of smartphones, you can get it immediately. And that leads us to error number four, which is managed marketplaces. This is the advanced services. This is the next iteration that’s sort of on the horizon. And that’s option five for today. It should, should Maytwan jump into this space or not, where we move beyond just matching. I mean, most everything we’ve talked about so far are fairly simple services. Get dinner, clean your clothes, cut your hair, get a ride. Very simple services. Now we start to move into more complicated, advanced services, regulated services, licensed services, education, healthcare, financial advisory. There’s this idea that maybe we’ll see a next generation of marketplaces for services that are far more managed. with a lot more going on where you have really highly trained professionals exchanging their services instead of basic commodity services like I need a ride. So that’s kind of the next frontier. Now I don’t think the way Anderson Drees and Horace and laid this out is very helpful. There’s a better model I think for this which I’m going to talk about next. Now someone I think is worth listening to on the subject is a man named James Courier. I think I’m saying his name right? C-U-R-R-I-E-R. And he’s a venture capitalist in Silicon Valley, and he has a company called NFX.com, or at least he has a webpage called NFX.com, which stands for network effects, because that’s kind of his thing. And he looks at marketplace business models and networks effects, that’s kind of his thing. Four-time serial entrepreneur, writes, not very often, but when he does write, he has really sort of original thinking. He has a little podcast he does from time to time, but he doesn’t really do it very much. Anyways, he’s a good guy to think about and to keep an eye on. And he has some interesting ideas. And I thought he had some really cool take on this whole question of where are marketplaces going? And the idea he puts forward is called market networks, which is the combination of two different words, marketplaces, which we’ve been talking about, and personal networks. something like Facebook, Twitter, LinkedIn. I wouldn’t call them necessarily social networks. You could call them social networks, professional networks, personal networks. But his sort of pitch on this is at a certain point when we’ve been talking about, I’m speaking for myself here, so these are not his words, these are mine. So much of the discussion around marketplaces for services have been, have. There’s been an assumption baked in that these are very simple services like get a ride, cut your hair, get dinner. But there’s a whole world of services that are more advanced and more complicated. And in these services, who the person is that you’re dealing with is as important as what the service is. The relationship is as important as the service. So You can’t just say, oh, this is a marketplace. You have to say, look, there’s two different things happening here. There’s one, there’s a marketplace. There’s also the idea that this is a personal network as well. People go to dentists that they trust. Dentists know other dentists. Dentists know the lab technicians that create the crowns. Everybody refers to each other because everyone knows each other. You know, that’s something like LinkedIn. LinkedIn is a personal professional network where you know people. And who you are matters, your reputation matters. You refer people to other. This is how you get, you know, this is like management consulting. This is how you get management consulting contracts. You know people and you don’t put up an advertisement as people recommend you. People, oh, you know, if you have a question, you should call that person. That person’s great. So the personal professional network is as important as the idea of, hey, this is a marketplace for selling services. You can’t separate those two things. So he puts these two ideas together. A marketplace plus a personal network gets you a market network. So let’s say personal network, say LinkedIn, Twitter. I mean, these things are based on connecting people, really based on relationships and reputation. That these social networks already kind of exist, you probably already know the people a little bit, or you’ve met them online. You tend to have longer term relationships. This is not like I’m just getting a ride to the airport, I’ll never see this person again. People who you have these professional relationships with, you may know them for years and years and years and work with them over and over and over again. So that’s kind of critical to a lot of this. And when you look at the marketplaces we’ve been talking about, okay, you have network effects, fine. Another. number you keep an eye on is what they call CAC, customer acquisition cost. How much does it cost to get you a new customer? Well, in a network like getting people to come to your restaurant or getting a ride, the customer acquisition costs are pretty standard because you always have to get new people. When it’s a professional network, the customer acquisition costs fall. The more well-known you are, the better your reputation, the more you’ve worked with someone in the past. your CAC gets less and less and less because people know you. That doesn’t happen in these pure marketplaces. That’s more about the professional network. The longer you’re selling. So, you know, in these marketplaces, CAC is very different. And James slams out a series of sort of factors to keep an eye on that would characterize a market network. Number one, these networks, marketplaces for services are built on top of existing networks of relationships. The networks already exist. You already have professional networks. You probably have client relationships. This is just moving that into the digital world as opposed to recreating it. Identity matters. People do pay more for babysitters they trust. They don’t pay more for an Uber driver they trust. They don’t really care. They definitely care for some services. You tend to have more complicated services. you tend to become almost like a SaaS business where you’re not just having a quick, short time, short term interaction like, take me to the airport, we’re done. You have longer term, more complicated interactions where you’re doing more advanced things. Psychiatry, psychology, taking care of children, education, treating chronic illness. Because these are longer term relationships with lots and lots of things happening, you almost build up a sort of collaborative workflow where you do lots of different types of things together over a long period of time as opposed to one-off quick transactions. I need a ride downtown, we’re done. The customer acquisition cost, the CAC, should be lower because you’re going to get customers based on word of mouth, based on referral, based on existing relationships. It should be a lot cheaper. It’s really not a gig economy. I mean this is like the anti-gig economy. This is about Professionals really care about their reputation. They’re very invested in their careers and their professional networks in a way that a gig economy person delivering pizza is not. And generally the you know the more sticky the relationship is, the less churn you’re gonna have, the more premium you can charge. If you have an accountant you really trust and is doing well, then when they ask 10% more you say fine because it really is worth it. The relationship has value. beyond the value of the service. Anyways, his argument, which this is now his words, a marketplace that sits on top of an existing professional network gets you lower cost of acquisition, higher frequency of transactions, decreased churn, but you do have a significant risk of disintermediation. It is very easy for the professional and the customer then to sort of go off on their own and the platform is no longer involved. This tends to work very well, or at least better for this idea of complex services. The anti-gig economy, the anti-commodity service market. collaborations around longer term projects. You know, the longer the project, the better off this is gonna work. If you’re educating a child from age six to age 10, that is a long term collaborative process that goes on and on so you can build a much more, you know, interesting relationship. Profiles are very important, reputation matters, long term relationship, there’s a lot of referrals and, you know. He has a chart, which I’m not gonna reproduce because I don’t have permission to do it, but I’ll describe it to you. It’s basically a two by two chart. On the Y axis, so going up, it basically says more marketplace. And on the X axis, going left to right, it says more network. And this idea of like, are these companies more about the marketplace? Are they more about the professional personal network? Or are they both? And in the lower right corner, So mostly a network not about the marketplace is something like LinkedIn and Twitter. It’s mostly what that platform is doing is the network. And then you go up to the upper left, Uber, Airbnb, Alibaba.com, that is overwhelmingly about the service and the marketplace, the reputation’s not that big of a deal, and then in the upper right corner, which would be both, you have things like AngelList and HoneyBook, and these are Western companies, but those are equal, it’s both. So I think that’s a really useful way to think about this question for what’s the next wave of services gonna look like. And this was option five in the list of things of what should Meituan do. Option five is let’s move in to more advanced, complicated services. And I gave you two versions of this. I gave you, well, I really gave you one. The market network. per James Currier or this Andreessen Horwitz idea of a managed network, which is really kind of the same thing. But we’re gonna move to more advanced, licensed, professional, regulated, you know, professional network-based services, as opposed to this gig economy, short-term transaction, simple services we’ve been doing up until this point. All right, with that said, let’s take another pass at this question. Now again, the more you put yourself in the role of a decision maker, the more you’re gonna learn. So you know Meituan, they give you a call, they’ve heard about you, that you’re pretty good at this stuff, they call you down, they say, look, we want you to meet with Wanqing. You’re only gonna get three minutes. This has been my experience. Like when you work for billionaires, you get three minutes. You gotta make your point and then you gotta go, cause then they move on. Okay, you’re gonna get three minutes. He wants to know how should Meituan compete with Alibaba going forward? And sort of what should… they do next as a services marketplace. And you have five options. And you can’t pitch 10 ideas they don’t want. You always gotta give these people your best idea. And then they’ll sort of agree or they’ll discount you pretty fast. But you get that phrase a lot, like give me your best idea in three minutes. So five options, what would you tell them? Number one, geographic expansion. Keep doing what you’re doing. You’re in the right places. Just do it in a new geography, Southeast Asia, maybe Indonesia, maybe move into India in a major way. That’s your best single move right now. And take everything you’ve learned, all the IT systems you’ve built, all the platforms, and just extend it right over there, which is a lot of what Alibaba is doing. They’re extending Ant Financial, Taobao, Tmall into Southeast Asia. They’re just porting it in. It’s a pretty powerful move. That’s option one, geographic expansion. And this list is in the show notes. Option two, stay with your current geography, which is overwhelmingly China. Target transportation and DD. You have hospitality services, you have food services, but we really wanna go after transportation service. So we’re gonna go after the whole DD playbook. Bicycles, ride sharing, taxi hailing, metro, bus, all of it. Go after Didi. Option number three, same idea, stay within China, focus on C-Trip. Try and take 20% of their business in the next year and a half. That’s hospitality, that’s plane flights, that’s hotels. And Didi has, I’m sorry, Maytwan has a presence in both of these, but they’re strong on the hospitality side. They’re definitely, they’ve taken a stab at the transportation side, but they’re not nearly as strong. Okay, option number four. Stay with what you have. We have a good engine. Let’s go into an ancillary service that also could be a very big long-term opportunity in its own right. Maybe we’ve played out the services thing as far as we want. Maybe we have 80% of what’s really compelling in services today, and anything else is just not compelling enough. So let’s move to another big opportunity outside of services that is adjacent or ancillary to us. And the two that jump out to me on this are, let’s build something like Ant Financial. Let’s go into payments, which they’re already in somewhat. Let’s do credit, let’s do insurance, let’s do a financial services platform like Ant Financial. That opportunity is just bigger than anything we’ve said. We could do that one or we could go after cloud, which is a massive business opportunity. So let’s just go into an ancillary business and put our chips there. So cloud or. Ant Financial type financial services and number five go into advanced services and this is the James Currier market networks Let’s move to this next level this next generation of services, which is a lot more regulated. It’s a lot more about the social network It’s a lot more about the professional network You know, let’s if nothing else that’s a good opportunity and we may have to do that because as a purely defensive move We probably need to have those capabilities anyways. We don’t want to get left behind as our services platform keeps evolving and we’re out of date. So maybe it’s an opportunity, maybe it’s a defensive move, maybe it’s both. Those are your five options. So okay, so press pause, you know, take a good 30 seconds, one minute, two minutes, and really have a reason why. Like, you can’t just say, you know, this is why I think we should do this. You always have to have a reason. I think you should do this because of A, B, and C. Usually three bullet points. This is why this is the best opportunity. It’s the best opportunity. It plays to our strength. We think we need to do it. You gotta have a reason why. So have a reason why and which of those five is your play. Do that right now, press pause, then please come back. And welcome back. Okay, so I’ll give you, I’m gonna finish up here in a minute because I’ve been talking at you for a while. All right, my take on this. You know, when in doubt, I always go for the money. Like if I don’t know what to do, I mean, everything sounds good in my head. Hey, that sounds good. That sounds good. Look, where’s the money? When I look at the money, if I look at their income statement today for Maytwan, the money’s coming from hotels. It’s not coming from bikes. It’s not coming from food delivery. That those are important things. That’s not where the cash is coming from. The cash is coming from hotels. So I would try and take down Ctrip. That would be my first goal. If we can take 20% of their business in the next year, here’s how much that’s gonna impact my bottom line. And that would probably be my first, that to me is the shortest path between money. We’re already there, I’m not afraid of them. I’m afraid of Alibaba and I’m actually afraid of Didi. Now the reason I wouldn’t go after Didi is because they’re not making a lot of money either and they’re a much more formidable. competitor. I’m afraid of Didi. I’m afraid of Cheng Wei and Jin Liu and them. You know, I would target Ctrip and I would try and move the revenue and profit line of the company as fast as possible. That would be number one on my list. Number two on my list would be to go after cloud, to go after an ancillary service. That… Yeah, geographic expansion is fine. I think that’s good. not great, DD I wouldn’t go after, the managed sort of network market, the market network, it’s not clear to me that’s going to work and even if it does work, it’s not clear to me how much money that’s really going to be. One of the reasons these simple services work so well, like ordering food, is because the volume is so high and it’s very inefficient the way consumers have to reach businesses. Well, Professionals are actually pretty good at reaching each other. They actually know how to do that. Most lawyers know how to get clients, doctors know how to get customers. It’s not nearly as efficient. So I’m not convinced that there’s a very easy to capture highly scalable opportunity there the same way there was for getting a ride to the airport. I would look at it and I’d keep my eye on it, but it’s more of a theoretical opportunity. The money on the table to me. It looks like Ctrip and it looks like going after the cloud business. Now I actually like the financial services business better. But to get into that you do need a payment platform. It’s very hard to do that without a payment platform and that’s harder to break into. But if you’ve already got all these merchants that are you know small restaurants. I mean if you’re doing cloud services you really want to be selling them to SMEs. So if you’ve already got you know hundreds of thousands of restaurants on your platform. start selling them cloud services. And this market is still wide open in China and Asia. I mean, Alibaba is the leader, definitely 10 cents number. Well, it’s 10 cents in Baidu, but it’s still open and you could get the third spot and that’s a good place to be and things could happen. So that would kind of be my play. And that’s already a proven business model. The one thing about Wanqing you keep in mind. This guy likes to copy proven business models. This idea of we’re gonna copy Facebook and bring it to China. We’re gonna copy Twitter and bring it to China. That’s a very smart idea because most new ideas don’t work. The vast majority of new ideas fail. So if you can start with something proven and then just start adapting it, that’s a really good strategy. So the idea you could basically point to, we’re gonna take Ctrip’s business. And the other idea is you see that business, Amazon, Microsoft, and Alibaba are building. We’re gonna copy that. we’re just gonna copy it, that’s step one, put it in place, roll it out to all of our hotels and restaurants as soon as possible and go from there. You know, that’s a much more logical sort of clear path in my mind, but a lot of it’s personality and that’s just my personality. So who knows? Okay, that is enough for today. I love this subject. I think this is such an interesting frontier, the whole services thing. So that is it for today. Thank you for listening. I hope this is helpful. Hope it’s a… interesting, maybe insightful, and maybe a little bit frustrating. That generally tells you if you’re learning. If you’re 20% frustrated, that usually means you’re at the sort of the frontier of your knowledge and you’re struggling to understand the next bit. You know 50% is bad, 20% that’s about right. And people usually yell at the professor either way. So maybe that’s personal, but I think that’s just the way of learning works. So anyways, hopefully that’s what’s happening. If I can be of any help, don’t hesitate to reach out. If you haven’t subscribed, please do so. Go over to jeffthousen.com and sign up there. This is getting more and more fun. We’re building and building and we’ve come a long way in the last couple months. And imagine where we’ll be in three to six months. I mean, if you’re struggling but you’ve been keeping up with the classes, imagine where you’re going to be in six months. How so much of this is going to be second nature to you. And then the subject’s going to come up in the office or wherever and… people are, you’re gonna start talking about it and people’s heads are gonna turn. Like, wow, that person really knows this stuff. I mean, another couple months, we’re really gonna, I think, put some big points on the board. So anyways, that’s it for today. Have a great week and I will talk to you next week.