In this class, I discuss my visit to the WeChat Open Class in Guangzhou. And why Allen Zhang and the WeChat team are doing so much better than Facebook and Apple.

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

Allen Zhang’s video from the event is here.

• Pipelines vs. Platforms
• Platform Types: Payment
• Platform Types: Transactions and Social

Companies for this class:

• WeChat
• Tencent
• Apple
• Facebook

———-

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.

——transcription below

:
Welcome, welcome everybody. My name is Jeff Towson. I teach at Peking University and this is Jeff’s Asia Tech class. Now the topic for today’s class is my recent visit to WeChat and basically why WeChat is so much better and smarter than both Apple and Facebook. Okay, now in the last week I flew out to Guangzhou and they had the annual WeChat Open class. Which is kind of their big annual event where they invite a lot of people in, they talk about what they’re doing. Oftentimes the sort of, you know, head guy Allen Zhang will present there. He is famous for giving like three to four hour talks, which is kind of crazy. This time he did a short video one, which was great. And I’ve posted the link to that if you want to watch it yourself. but they also sort of present what they’re doing, what’s big and it’s kind of the annual event. They also, there’s an exhibition, they show what they’re doing. So I flew out and did that and I’m gonna talk really kind of what my big takeaways are from that and also why is this company so much better than Apple and Facebook in particular? And I think they decisively are when people say like, who’s the next Steve Jobs? We know who the next Steve Jobs is, it’s Alan Jung. It is not Mark Zuckerberg. It is not Kim Cook. I’m sorry. Congrats. Those people are super successful No, no, no, no, it’s Alan Jong and maybe is the second runner-up could be Jack Ma but you know Alan Jong is really the guy to listen to very interesting person very agile mind very creative and Almost an intuitive thinker which is you know Probably the closest I’ve seen to Steve Jobs in that regard. So anyways I’m going to talk about my experience, the trip, and those sort of things. And that is going to be the class for today. However, but first, if you haven’t subscribed to my Asia Tech class, please do so. You can go to jeffthousen.com and sign up. There’s a free 30-day trial. If you are listening on these, yeah, look, it’s $9 to $10. You know, suck it up. You know, I’m going to guilt you a little bit at some point that… You know we’re trying to put out a lot of value and a lot of content to people for a really quite a slow and small price you’re talking about a couple cups of coffee depending on what city you’re living in so one go do that second. In the past week i’ve been reaching out to you know quite a few subscribers to talk on the phone and say you know. What do you think like what’s good what’s bad what did you hope to get out of this what are you getting out of this. And you know this has been sort of version 1.0 of this class over the last two months we’re now going to move to version 2.0 and you know that feedback has been incredibly helpful those of you I’ve talked to you know thank you so much. One it was great fun to actually talk to people and you know I appreciate you giving a little time and saying what you think and really starting to get some great feedback so we’re going to try and improve this very quickly. Lots of different pros and cons the one thing everyone seems to agree on is the web page sucks I’m like that’s like everyone says is like like the web page sucks Which is true and that’s that sort of been on the to-do list That’s basically next up is to a redesign the web page and make it not so sucky So that’s coming kind of fun. I know it sucks more than anybody trust me, but that’s great and So if you want to provide feedback and I haven’t emailed you and you have some comments, please just take a moment, send me an email. Jeffrey Towson at gmail.com. That’s just one long word. Jeffrey Towson, J-E-F-F-R-E-Y-T-O-W-S-O-N. It’s the same as the webpage. At gmail.com. Just send me a note. Or if you want to talk on the phone, send me a note. We’ll talk on the phone. That’s incredibly helpful. And honestly, it’s been great fun. You know, it’s just really nice to hear what people are doing in life. And… So anyways, definitely do that if you’re interested. The other little thing on the list is I put out a New Year’s challenge to people last week, which is starting this week, to do sort of a 30 day sprint, create a new habit for the next 30 days that helps you move towards a big goal you might have in life like learning a new language, doing this class, getting to the gym, something like that. We’re all gonna kind of do that together. So you can go on my page and just look at 30 day New Year’s challenge, maybe join in on that. It’s going to be kind of fun. OK, so that’s sort of the housekeeping for this. Now on to the topic. OK, so WeChat is based in Guangzhou, which is just sort of northwest of Shenzhen. And that’s a little odd to begin with, because Tencent is based in Shenzhen. It’s always been based in Shenzhen. But when they launched WeChat, it created by mostly Allen Zhang out of Guangzhou, which is kind of strange. And, you know, Guangzhou is, it’s an odd place. Like it’s like the China first tier city that never was. Like you go back 15, 20 years, you know, China was all about the first tier cities, mostly. That’s Beijing, Shanghai, Shenzhen and Guangzhou. I mean, it was always four. And Guangzhou just kind of never really happened like Not that many significant companies are based there from definitely from a tech perspective, but just overall and You know, it’s not that developed Didn’t take off like the other cities and then out of nowhere comes honjo, which was you know was lucked out in that Jack Ma was from there and so honjo became a tech city and really It’s become like the other first tier city of China. When you talk about first tier cities of China right now, you hear Beijing, Shanghai, Shenzhen and Hangzhou. Usually people don’t even mention Guangzhou. It’s a sort of strange what happened question. Okay, but WeChat is there and you know, there’s some nice things about it, but you know, you’re as likely to hear Guangzhou mentioned with somewhere like Wuhan. These days as opposed to say beijing or shenzhen okay but we chat is there interesting so i flew out there to be you know sort of do their annual conference and you know one of the nice things about my little professor slash i don’t know. Writer slash influencer whatever you wanna call that role is i get invited out to visit companies which i really enjoy and i find it fascinating i get to learn about alibaba and jd and all of them and. I think companies are pretty comfortable with that because I’m not a reporter. Like you know I’m not, I’m a professor. I don’t really care about most of the issues that the press writes about. I care about sort of the bigger, big business questions and what you can learn. I mean that’s kind of my thing is what in here is valuable to executives and students around the world that’s going to make you smarter. So that’s kind of what i’m looking at and so generally it’s everyone’s pretty comfortable with that so i can invite it out to quite a lot of these and i really do enjoy it. So i flew out to guangzhou and i hadn’t been to this before this annual event. But i know people that do so in particular matthew brennan who you might have heard of is a. Real cool guy he lives out in chengdu he writes a lot about wechat in tencent almost exclusively that’s his biggest subject. So he knows everything about this company. So I got to hang out with him a little bit, which was fun, because we’d never really hung out in person, although we know each other. So that’s great, and just learn what’s going on. So Flyout, there’s a big convention center, because Guangzhou has a ton of convention centers, go out, and it’s sort of a one-day event, and you sit in a big, huge auditorium, and they put up the screens, and because it turns out tech companies are really good at audio-visual stuff. And you know first thing they have for the day is they have Alan Jung give a you know sort of a video presentation. He’s not doing his four hour in person you know presentation this year which I think is great because I think that’s like the worst of all ideas to do a four hour. No one wants to hear a four hour presentation. I’m sorry if you can’t get your point across in 45 minutes you’re not doing your job well. You know I’m sorry nobody on the planet. has so much value that it takes four hours. If you’re talking for four hours, you’re giving your best ideas, then you’re giving your second best ideas, then you’re giving your third best ideas. No, no, no, no, no. Your first, I only want the best ideas. I don’t want every thought that’s in your head. I just want the best 10%, and that’s 45 minutes. So, you know, needs some curation and editorial control on that, I think. But. He obviously doesn’t care what I think at all. So, you know, whatever. Anyways, and I thought this time, Alan gave a very good short presentation on his best 10% of thinking, and that’s really what I want. So I’ll put a link in the show notes here for his talk. You can watch it online, and they’ve put subtitles up. So that’s great. Okay, so he talks about… a couple ideas and the ones that really got my attention that I you know I take a ton of notes of these things and then I mull them over for weeks. But he talked a lot about this idea that the world is being shaped from the consumer perspective from the user perspective it’s being shaped by the information flows that you access it you know maybe 20 years ago when you thought about your life it was shaped about like where have I worked. Where do i live i live in california then i lived in new york but i’ve been to vacation in greece you know and i have friends that work in this company and i work that you know that’s kind of how our lives were shaped was where we’ve been. And you know his point was your life more and more is being shaped by what information flows you access on a regular basis. Which could be a podcast it could be articles it could be a lot of things but so. how these information flows are sort of shaped in access are defining the experience of our lives and what we learn and what we think of as our lives. And I thought that was a pretty powerful point. And then he sort of pointed to five or six factors that shape these information flows. And I’ll read you the ones he listed. Open up my notebook here. The first one he said was social. social relations, social networks, we are social creatures. We get most of the information in our lives from the people that we connect with. Could be in person, hey, here’s my colleague at work, could be my family, could be my friends, but it’s also increasingly your sort of social, quasi-social relationships online. I know a lot of people around the world that I’ve never actually met in person, but I read what they write, I listen to what they say. So social. relations, social networking, probably the most powerful factor shaping the information flows that we access. Okay, good. This idea of privacy versus convenience that as we make ourselves more private, you know, I don’t want to share this with people, I don’t want people to know this about me, and as other people don’t want to share, well, that does impact the information flow. And the counter argument is convenience. hey, let’s make everything out there, let’s share everything, it’s gonna be very convenient, the data’s just gonna move, and we’re not even gonna get to choose what data moves, it just moves on its own data information. So there’s that dynamic that’s sort of shaping the privacy versus convenience argument, and that does shape information flows. Third point would be sort of passive delivery of information. So much of the information we access on a daily basis is not stuff that we choose, it’s just happening passively. The newsfeed is a really powerful tool. Whether it’s Facebook or Twitter or WeChat or whatever, even like Netflix, you’re not choosing what comes next most of the time as you read one article and then the newsfeed just keeps serving you more and more. They kind of call it the endless bowl of soup. There’s these great studies that people have done about like, How much soup will someone eat? And if you just keep filling the bowl, they will just keep eating soup. Like I’m not making the soup analogy up. It’s like a real study. You keep filling the soup bowl, people will keep eating soup. So, you know, the newsfeed is the centerpiece of a lot of these networks, whether they’re social or whether they’re publication services, media services, you know, this constantly just teeing up the next bit of content. Netflix does this, YouTube does this, Yoku does this. They don’t ask you if you want to see another video. It immediately tees it up and starts playing. So this sort of passive delivery of information is an important question. Fourth factor would be the spread of information that I see a video, I see an article, I see a comment by someone, and I share it with my friends or my colleagues or my connections. how this information is not just delivered, but how much it is shared between people, which is, you know, people are talking about this in the idea of fake news and misinformation, that there’s a tremendous amount of not just low quality information being shared, but actively active misinformation, where people know it’s fake from the get-go, and they’re counting on sharing to disperse it out into the world. So this is idea of sharing. which is important. And there’s last one would be, I would call long tail search. You know, so much of the information we access has been based on mass markets. You know, everyone, this is the most popular newspaper. This is the most popular TV show. This is the most popular channel, CBS, NBC, you know, whatever. Search engines, groups like TikTok. they’re really doing incredibly well by teeing up sort of long tail information, rare niche information that is very tailored, you know, created by a very small number of people and tailored for a very small number of people where, you know, what you’re seeing on TikTok and what I’m seeing on TikTok may be 80% different and a good 30 to 40% of that is really niche, tiny audience content as opposed to mass market content and information. So there’s this idea of matching with long tail information, but there’s, you know, those were kind of the ones he teed up and I thought those are really interesting. In this idea of you know, how do we view how information is is moving around the world and what information a consumer or a user regularly accesses. You know that does shape their worldview and to some extent it shapes the course of how they view their life and that’s a big big idea. So I really thought that was pretty cool. And that was my big takeaway from Alan’s talk this time around. And that brings us to Facebook. Like why is WeChat so much smarter than Facebook? And really Alan Jong is the guy who created WeChat. The history of this is well known. I can give you the basics of it, but you know back in, let me pull up the dates. Back in 2011, Alan Zhang, who was reporting to Tencent CEO Pony Ma, and he basically put together a 10 person team at that point based in Shenzhen, and this idea of let’s build a simple intuitive tool for private communication. And that’s kind of the key distinction was from the get go, it was always designed to be for private communication. They launched it in 2011 for about six months. It didn’t really do very well. And there’s actually some interesting competitive questions about, uh, we chat versus the competitors in China at that time, specifically also like talk box, I think is the name of it out of Hong Kong. And I will do another case on that because it was not obvious. Uh, we chat was going to win. And then they started leveraging in QQ, which is their other messenger, and then they took off and they’ve dominated. There’s actually some interesting, we’ll do a case on that in itself in another class. I don’t really wanna get into that right now. I just wanna talk about this idea of, his sort of intuitive feel for how messaging should work. And I think he, and this is why I point to him as sort of Steve Jobs, which is, I think his intuitive feel was spot on. almost from the beginning that messaging, which is how WeChat started, but really social networks are much more useful. They are much more enjoyable and they’re actually much more frequently used when they are private. Now that’s kind of obvious in retrospect, but if you look at what Facebook was doing back then, Mark Zuckerberg’s idea was that everything should be public. Everything should be public. Everything you post should be public. and everyone should see it and you know we should all have transparency and everything and i think that’s wrong on multiple levels like one if you look at how much public communication you do versus how much private communication you do the vast majority of your communication in life whether it’s one-to-one messaging whether it’s posting things is private you know we don’t post that many things to the general public you might talk with your friends one to one. You might have a class at school where you would have a private small group. You might have a small group at work that you talk to. You might have your family, your friends. Most of our communication in life is one to one or small group and it’s overwhelmingly private. So the frequency is much, much more when you talk private and not public. Second point of this is we behave very, very differently when we talk in public versus how we talk in private. you are pretty close to your real self when you’re talking to your friends. You are pretty close to your family, to your real self when you’re talking to your family. And when you’re at the office, your work, okay, you are a professional version of yourself. You’re not walking around the office in your pajamas saying, hey, let me tell you a dirty joke. You do have a sort of business persona you use in the workplace, and you have a persona you use with. your friends and your family and those two i think are pretty close to who we actually are once you move into the public realm people behave very very differently you know they project sort of a glorified version of themselves there’s a lot of bragging there’s a lot of oh i just got you know promoted at work and you know here’s a photo of me you know it’s never a real photo of you it’s a photo of you looking your best Instagram is a total fake version of everybody. Look how happy I am and look how great I’m doing. It’s a lot of bragging, it’s a lot of showing off, it’s a lot of vanity. It’s a lot of envy that you see other people and you feel, oh look how well they’re doing, that makes me feel bad. Look at this person’s new house they bought. Well, that’s better than my house. There’s a lot of envy and jealousy and bragging. Public persona is not healthy. like it’s really not a lot of bad behavior and it makes you feel bad. Like there’s crazy numbers on how bad teenage women feel the more they use Instagram or Facebook. You know, the, it’s really crazy how unhealthy a lot of this is for people in the public persona in the public realm of sharing, but when you’re in private, it’s actually pretty healthy and it’s pretty nice. I really liked LinkedIn. Even though LinkedIn is public, people behave themselves. People behave on LinkedIn the same way they pretty much behave at the office. You know, you don’t say toxic stuff. You don’t brag too much. You know, you kind of behave there like you behave when you’re at work. Twitter, in contrast, people are awful on Twitter. Like, I really don’t like Twitter either. And okay, so Facebook was designed around this idea that we are all on the front end. on the consumer facing end, we’re all going to share things publicly. When the more we share in life, the better it’s going to be connectivity. We’re going to connect the world. This whole nonsense story. Well, when it turns out public sharing and public communication is very, very bad. Uh, so the whole consumer piece is addictive. I think it’s designed to be addictive. I think it’s designed to have an emotional impact. I think it’s designed to have outrage and anger. If you spend more time on Facebook or Twitter, do you feel better or do you feel worse? I suspect you feel worse. And then on the back end, the business model that was supporting this, I think, mostly toxic engagement, the business model they adopted was surveillance capitalism, which we’re going to give you this free service you can use and then we’re going to track everything about you everywhere in life and we’re going to serve you at. So I think it’s surveillance capitalism, which I think is a terrible business model. paired with a mostly toxic addictive service on the front end. So I don’t like either side of this company. Not that they care what I think in the slightest. But why I think WeChat was so well designed was it was designed to be private. It was designed to be valuable. The idea is not I’m going to have you come on Facebook and I’m going to try and get you to post as much as possible. and I’m gonna try and get as much passive consumption out of you as possible, because I want you to spend all day long on Facebook or Twitter. WeChat has never done that. WeChat’s thing is you should come, it should be a valuable tool, and then you should get off it. Like, it’s not supposed to encourage passive consumption. It’s supposed to be healthy and mostly valuable and not a place for passive consumption. They are not playing on your addictions. They’re not playing on your psychology. They’re not trying to get you to post more and more for the most part. There’s exceptions to this, but it’s supposed to be a useful tool in your life, not a waste of your time. And I think that’s right on. And the irony is at the starting of 2019, Mark Zuckerberg had this mess memo that went out where he said, we are going to change course as a social network. and we’re gonna do this is a quote we’re gonna do privacy focused messaging and social networking. That was the goal of his memo in early two thousand nineteen. And he laid out a strategy that looks basically like an exact copy of we chat. And and i’m very open about the fact that they’re watching we chat. Now i think the whole we’re gonna do privacy focusing message privacy focused messaging and social networking their phrase. One, I don’t buy it at all. I think Facebook is in the surveillance business. That’s how they make their money. Their goal is to get every bit of information from you, about you, whether you’re on their platform and not, I’m not on there, I deleted my account years ago. And then they want to sell access to you and advertising to people based on what they know about you. So they are a surveillance meets advertising business model. I think that’s antithetical to privacy. And they’re sort of yearly, you know, they get into a scandal about every six to 12 months. Like the joke is Mark Zuckerberg has been on like a 15 year apology tour. I don’t think that’s random. I think that’s a direct result of their business model that they’re going to continually have scandal after scandal after scandal because they’re in the surveillance business. And that makes people angry on a regular basis. So now they said we’re going to do privacy focused. social networking, I don’t buy that at all. I think privacy is in conflict with the surveillance business model. It’s the same way when Coca-Cola announces we’re going to do diet coke. Look, you’re in the sugar and caffeine business. That’s what the business, you know, you have a nice soda, I like Coca-Cola, but you are in the sugar and caffeine business. So when you say you’re going to do diet coke, you know, that’s… that’s kind of in conflict. So when they say that we’re gonna do privacy, social networking, that’s like Coca-Cola talking about launching a diet product, it’s whatever. I think what they’re putting out into the world is a sort of diet version of surveillance. And I don’t really buy it. Okay, so what they basically laid out as a business model is we’re gonna do interoperability between WeChat I’m sorry, between WhatsApp Messenger, Instagram, and Facebook Messenger. We have three different messengers. We want to combine them into one because if we make it interoperable, it’ll be more valuable to the users. Totally don’t buy that. I think they’re going to combine them. I don’t think it’s because it’s going to make it more interoperable and consumers are going to do better. No, no, no, no. I think they’re consolidating under one messenger the same way WeChat is one consolidated messenger. I think that’s the goal. And then from there, once you consolidate Messenger, you start to add payment, i.e. WeChat Pay. And once you get one Messenger plus payment, then you can move into e-commerce, which is what WeChat is famous for. I can Messenger people on there. I can pay all my bills. I can pay my utilities. And they’re moving more and more into e-commerce. So they’re basically copying WeChat as far as I can tell. But the difference is I think WeChat was designed from the get-go to be private, to focus on small groups and to be a utility that’s useful, not something where you put out as much information about yourself as possible and you do a lot of passive consumption, which is what Facebook has been doing because that’s their business model. So anyways. I think it’s just a much better model. I think it’s a much better business. And I think they’ve been much smarter from the get-go. And I think they understood social networking and messaging much better. And Facebook is great. I’m sorry, WeChat is great. And we’ll see how Facebook does against this, whether they abandon their surveillance model and they move to a pure WeChat model or whether they kind of go halfway. I think they’re going halfway. I think they’re putting the term privacy on what they’re doing and then they’re going to try and do payment which they tried with Calibra. It doesn’t look like it’s working. Now they’re doing the Facebook pay which probably will succeed and then they’ll go right into e-commerce. So it looks like a copy of WeChat and you know we’ll see what happens. So moving on to Apple. Why is WeChat smarter than Apple in China? You know Apple has done spectacularly well in China. You have to really give them credit like China is a tough market the competitive aspects are very very difficult consumers change very very quickly. It’s a tough market is a huge market but it’s also pretty difficult and. Most companies don’t survive let alone thrive. But there’s a handful of companies that have come multinationals who come into China and just absolutely rocked it. The NBA, spectacularly successful in China. Coca-Cola, amazing. And Apple is on a short list of companies that have done absolutely amazing in China. And they’ve come, they got tremendous market share, they had a huge growth, and they built an amazing brand. Like, Chinese consumers love Apple. Like they really do think incredibly highly of this company. That’s a big success. If you can convince a massive population like this of your brand value, that’s a huge success. Doesn’t mean you can always monetize it, you know, but it is a huge success. So, now this was, I’ve been sort of writing articles about this for three or four years, basically saying, look, Apple’s doing amazing in China, but they have a huge Achilles heel. They have a huge weakness that someone may exploit in the near future. And I cited that as basically their lack of software and services in China. And their big accomplishment was handsets that Chinese consumers love the brand and they buy the handsets, but they’re not using the software and the services of Apple. And that’s the big Achilles heel. Okay, I’ll explain that in a sec. But… What China did on the good side was they targeted like really the best niche you can be in in China. If you could be anywhere in China on the consumer side, which is where you wanna be, you wanna be in affordable luxury. I mean, that’s the phrase, affordable luxury, where you are perceived in the consumer’s mind as something very special, as an aspirational thing, something that makes them happy, that gives them status. But you don’t want to be ridiculously expensive like I don’t know like SUV, BMW SUV because most people in fact can’t afford that. You want to be a luxury aspirational brand that is somewhat affordable to most people. Now most people in China, an iPhone in China is an aspirational luxury. You can’t buy one every month but most of the middle class in China can buy one occasionally. may have to save up, they may have to wait, but it’s within reach for a good portion of the population. So you don’t wanna just be luxury, you wanna be affordable luxury. That’s a great space to be in. And they definitely are. I mean, you can, I remember I was in Ho Hut, which is in Inner Mongolia, the province, the capital there. And I was in some random side street, in this random, just regular restaurant, nothing special at all. And I was just sitting there and I had an iPhone you know, stop me after he took the order and he said, oh, iPhone, is that iPhone eight, nine? What is that? And I said, oh, this is what I think was an iPhone eight or something like that. He goes, oh, how much did you pay for it? Right, that’s a really good indication that like, this was just a waiter in a second tier Chinese city on a random side street, but that person wanted to buy an iPhone as well and could probably save up. That’s a great space, it’s affordable luxury. So when Apple launched into China in 2011, 2012, when smartphones started to take off, they really were the brand to have. And that’s great. And they rode the wave because we had a good four to five years, six years, where the growth was so high that everyone was doing well. Okay. Well those years have have kind of passed now the market is not growing at 10 20 30% per year it’s pretty flat in terms of smartphone sales and a little bit declining. So what happens when a rapidly growing market turns to a more stable mature market is the competitive dynamics get a lot more brutal. You know when the rising tide lifts all boats it’s great. When that stops, starts to end, everybody turns their guns on each other. And then we discover who really has the competitive barriers and who doesn’t at that sort of, you know, slowing growth phase. And that’s pretty much where smartphones have been in China for the last couple of years. So after years of rapid growth, we’re seeing flatlining sales and now a painful. Shakeout. We’re seeing 5% contractions in smartphone sales starting in like 2016, 2017. And we’re gonna see consolidation and a lot of the smaller players are gonna get washed out. And unfortunately for Apple, one of the things that’s happening is the mid-tier brands who are not luxury, but have huge volumes. And this was like Huawei two years ago, are gonna start to move up market. And lo and behold, that’s exactly what happened. Huawei, which has huge volumes in smartphones, you know, now up to like 40% of the market. they’re gonna start introducing luxury brands on top of their mid-tier branded phones. So they have the Honor phones, and then they have the top-tier Huawei phones, which are actually the handsets. They’re nicer than the Apple iPhone handsets. I mean, they really are really, really nice. And so when this sort of shakeout happens, do you have protection? Do you have competitive barriers? And it turns out for basic smartphones, just the handsets, there aren’t really any barriers. It’s a pretty brutal business to be in where every 12 months you have to release your new smartphones and you hope that you’re cool. And if you have a cool smartphone that year, people move to you. And if you don’t, the market share swift, you know, shifts back to somebody else. And that’s a game that’s a pretty tough game. That’s the game Xiaomi lives in. It’s the game Huawei lives in, Oppo, Vivo, OnePlus. That’s a difficult game and it’s a game Apple is not playing in the West because in the West they’re selling the smartphone, the handset, and they’re selling the ecosystem, the software and the services. Someone like my mom is not going to shift from an iPhone because all her contacts are there, her friends are there, her stuff is stored on the cloud, she’s using iMessenger, she’s bought movies on iTunes, whatever. There’s a lot of stickiness to being locked into the ecosystem. And the fact that Chinese consumers are not using Apple software and services means they don’t have any of that, which means they have to play the whole handset game year after year, which is a brutal game. So that was kind of their Achilles heel, slowing sales overall and smartphones, intensifying competition. And Chinese consumers are buying their handsets, which they like them because they’re a luxury brand, but they’re not buying into the ecosystem. Now being a luxury brand offers you some degree of competitive protection, but nothing like they have in the United States. So that was kind of the scenario. And you know, what’s what software and services are Chinese consumers using? Well, they’re using WeChat. Right? Like, there isn’t one iOS app store or Google Play Store in China. There’s like six, seven, eight, nine different Play Stores you can get software from. So you’re not getting a lot of power by controlling the App Store, which Android gets in certain places and iOS gets in other places. You know, it’s a free-for-all on the App Store side and it’s a free-for-all on handsets. So you really want to control or at least dominate where consumers spend their time in terms of software and services. And where do they spend their time? Well, they spend their time on WeChat. That’s where they message their friends. That’s where they have their private groups. That’s where they’re doing payments. That’s where they’re doing increasingly mini programs, they’re paying their bills. People call WeChat sort of the operating system for a digital lifestyle. And it’s almost like they’re a smaller version of the operating system. Instead of iOS being the gateway to Chinese consumers, that’s the first place they go. No, the first place they go is probably WeChat and a handful of other apps. So they don’t have much… control on the software and services and that’s a problem. How do you compete with WeChat if you’re the iPhone in China and they’re really not doing well. I mean it’s partly because a lot of their services are not allowed in China like you know content and movies and things like that, but they just haven’t been competing effectively in software and services in China. You know, they’re still mostly selling handsets and that’s not a great business to be in. No, I mean, they have their brand and that’s an asset, but. You know, the Steve Jobs of Apple, what Steve Jobs did well, I mean, why is Steve Jobs different than Tim Cook? Steve Jobs was sort of the intuitive innovator who could thrill consumers year after year. Here’s the iPod, bam. Next year, here’s the iPhone, bam. Here’s iTunes. Here’s iPad. You know, here’s… He was very good at thrilling consumers and getting them to use the software and services, which was linked into the hardware, but most of his strength was in that software and services side. And that’s where people like Alan Jung are really good at understanding what people want and what they’re going to use. And Tim Cook is not really good at that. I mean, when’s the last time Apple released anything that thrills people? Airpods? Really? Earphones, that’s it? The iWatch, I mean, it’s been pretty much nothing. Alan Jong is very good at that. Another company that doesn’t get a lot of credit for this is Xiaomi. Xiaomi is actually very, very good at coming up with new stuff every couple months that is really fascinating and interesting. And, you know, they’re not getting people to lock into their ecosystem, unfortunately, so they have to keep coming up with new, thrilling products and services all the time. But if you go into a Xiaomi store in China, they’re full. I mean, people are always, they’re packed because people wanna see what’s new. I don’t really go to the Apple store because I know it’s gonna be pretty much the same stuff that was there last year and the year before and the year before and blah, blah, blah. And I don’t even think the iPhone is terribly interesting. I like the Huawei phones much better. So anyways, that’s kind of been their problem and I think you have to give credit to the software people of China, especially WeChat. of just being better at the consumer engagement and consumer experience side than Apple has been. But that’s just an opinion. I seem to be bagging on multiple companies today. But anyways, that was kind of my takeaways from the visit to Guangzhou. I’ll be writing a lot more detailed stuff. Specifically I’m going to write about WeChat Work, which is sort of their enterprise focus, their B2B business they’re trying to build. And then the mini programs, which is them moving into e-commerce in a fairly important way. I’m going to write about those two in detail in the weekly articles, but I thought, you know, just sort of at the highest level, that was really my takeaway was. You know, what, what Alan Jung and the WeChat team is doing is really cool and it’s really interesting. And I think they’re just more creative. more engaged, more innovative than Apple and Facebook by a fairly healthy margin. I don’t think it’s close. I think they’re way ahead and I think they’re pulling ahead. That’s sort of in my take. Anyways, and I don’t think this is going to play out in China too much because obviously Facebook’s not in China. I think where you’ll see this difference in innovation, I think you’re going to see it play out in Southeast Asia. WeChat and Apple and Facebook and Alibaba and all of these companies are going head to head. You really are seeing these different Chinese and Western companies going head to head in India, Indonesia, Vietnam, Thailand and maybe Latin America. So we’re going to see how this plays out there and that’ll be pretty interesting to watch. Okay, and that’s basically it for today. Next week, we’ll get back to more standard case where I’ll give you questions to take apart. So. I just got some guys showed up in my place to do some renovation stuff, so I’m going to have to cut this off. But that’s it for today. And once again, feel free, jefftowson.com. You can subscribe there. I would greatly appreciate it. Any feedback you do have would be a huge help. Don’t hesitate to reach out. But I think that’s it for today and I will talk to you again next week.