Related podcasts and articles are:
- WeChat, TikTok and Capturing the Consumer Mind in a Digital Age (Jeff’s Asia Tech Class – Podcast 36)
- WeChat Work and Why Enterprise Tools Will Be Very Different in Mobile-First China
From the Concept Library, concepts for this article are:
- Complementary Platforms
- Digital Competition Pyramid
From the Company Library, companies for this article are:
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Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, why you should pay more attention to WeChat mini programs and SoYoung International. So I’m going to kind of pivot back because I’ve been spending quite a bit of time on theory over the last month filling in kind of a lot of gaps I think that were in the curriculum. But I’m going to switch back to companies. I try and sort of balance between companies and concepts. Both are summarized in the concept library and the company library on the web page. But we’re going to talk about WeChat mini programs because WeChat had its big annual event last week in Guangzhou, although this was online this year. And also talk about SoYoung International, which is not a well-known or widely followed company. but there’s a lot that’s interesting going on there, actually both companies. So that’s the topic. And getting back to the normal format, I’m gonna ask you a question. And the question for today, which I will go through and then ask you to take a shot at it, but the question today is, how big could WeChat become in e-commerce? What’s its total addressable market? And that’s really about mini programs, which is a big question mark. in the company strategically, but it’s also a big question in terms of future valuation. I don’t hear people talking about it and I think they should be. So that’ll be the question. How big could WeChat become in terms of e-commerce, the total addressable market? Okay, let me put this a little bit in context. The companies I’ve been covering in the podcast, but especially in the newsletters that go in the realm of actionable, you know, stuff you can do something with, with an investor’s mindset. And they do fall into a couple buckets. One bucket is very simple. It’s look, this is a great company. Everyone knows it’s a great company. Great, I mean, qualitatively and in cash flow as well, usually. But what is something within this great company that is a subtlety that people aren’t getting? that is a change that is coming that people are underestimating. So yeah, everyone knows WeChat’s a great company. Tencent’s a great company. Everybody knows this. They’ve known for quite some time. But what are they getting wrong? And specifically, what might they mean, misvaluing? So that’s the WeChat discussion for today. What’s coming, what’s around the corner, what are people getting wrong? Second bucket I tend to point to is, look, here’s a really great company that is either unknown, Like people don’t know about it yet. Or maybe it’s got some uncertainties around it. So yeah, it’s good, but there’s a lot of stuff that makes people uncomfortable. Or yeah, it’s great, but only in one part of the company and the other part of the company’s maybe messy or unattractive. So it’s kind of like there’s a great company in there somewhere or that people aren’t looking at. And that’s the category SoYoung goes under. This is a potentially great company, but it’s messy. There’s a lot of great stuff. There’s a lot of stuff that makes people uncomfortable. That’s a pretty good place to hunt because if you can sort of cleave those questions apart, there’s a real opportunity there. And then another category is look, this is a profitable situation regardless of company quality. And I sent out to the subscribers an idea that I think fits into that maybe category a couple weeks ago. I’m not going to say it on the podcast. They keep all my best ideas for the subscribers. Now, on a side note, this is kind of fun. Well, I think it’s funny. In the last three to four weeks, there have been two articles in major publications. So think CNN, CNBC, that sort of stuff. That looked to me exactly like two articles I sent out to subscribers in the last two months. Like literally, the headline looks exactly the same. The company is the same, obviously. And the take is the same. The first time it happened, I thought, oh, that’s funny. This well-known global media company has put out an article about this specific company that is basically the point I made three weeks ago to nobody but the subscribers. And then it happened again last week with another company where literally the headline exactly is the same as my headline. So it’s possible, it’s just a coincidence. But yeah, there was a. There was an article basically that said, is it possible that this company is going to buy this company? Leaving out the names. And that was exactly my headline. Anyways, so who knows? I’ll see if this keeps happening. Okay, let me go into some basic stuff here. For those of you who are subscribers, the three concepts I want you to think about for today are marketplace platforms for services, innovation platforms, and the digital competition pyramid. These are… within I think the key digital concepts you need to understand. You can go to the ConceptLiper on my web page anytime, search by all of those. They’re listed right there, but I think these are big topics. So all of this is gonna go into that bucket and it all goes under Learning Goal 18. And just so I’m clear here, nothing in this podcast or in my writing or on the website is investment advice, the information and opinions from me or any guests. may be incorrect, the numbers and information presented could be wrong, the views expressed may be incorrect or may no longer be relevant or accurate. Investment is risky, this is not investment advice, do your own research. And for those of you who aren’t subscribers, feel free to go over to jeffthousand.com, you can sign up there with a free 30 day trial and see what you think. Okay, let’s get into the content. WeChat OpenClass, which was a couple days ago, this is their annual big meeting. And I went to this last year, it’s literally the last thing I went to in China before the lockdown in January. I flew out a couple of days ahead of time back to Bangkok and that was kind of that. It’s a pretty fantastic event. It’s, you learn a lot by what, about what management is thinking. I mean, it’s a, yes, it’s kind of a sales event, but really the audience they’re speaking to is business partners and developers. They’re letting, you know, all of these platform business models, their businesses to a large degree are built by developers who write apps, who create content, whatever, that then become the assets of these platforms. So they like to give them a heads up on what we’re doing, what’s coming next, what are the advances you should know about. And so it’s really speaking to the developers and also various business partners. A business partner could be anything. If you’re doing an operating system like WeChat, you might be talking to people who make peripherals. for smartphones or whatever, or Bluetooth headsets or whatever, anything that’s going to tie into this business in some form. That’s a pretty big category. But generally, application developers are what people care about for a group like WeChat. For a group like YouTube, it would be more focused on content creators. This is a major user group. Okay. Now, it was pretty a fun event last year. This one was online, so those aren’t nearly as interesting. Allen Zhang, who’s the, people call him the founder of WeChat, but he’s not the founder, it was created within Tencent. He was sort of, let’s say, the father of WeChat. And he is famous for giving really long talks, three hours, four hours, which is kind of, I guess, a hallmark, generally speaking, that’s a terrible idea. I mean, it’s really, it sounds interesting, it’s not. It means you haven’t thought about what you’re saying. enough. It’s like writing a 4,000 page book. There’s nothing in a 4,000 page book you couldn’t crystallize down to a 600 page book. You just didn’t bother to do it. So the whole, hey, it’s a four hour lecture, it’s like, hey, that’s not a very good idea. But that’s what he does. That’s his thing. Last year he gave a much shorter one, just like 20 minutes. This was another crazy long one. But they have lots of breakout sessions they go through and I generally walk away from these meetings, whether it’s WeChat or Alibaba or Huawei or whatever with a short list for where I think management is going. I’m digging into the strategy. Obviously that’s my focus. What’s going to be a big deal in three to five years? And can I sort of see the road ahead further than others? Because that’s kind of what I do. You know I’m on the strategy meets tech bucket which doesn’t help you if you’re day trading but it’s very good if you’re trying to buy quality companies. of everyone else. So okay, I’m going to give you the short list for what I think was important. For those of you who are subscribers, I did mention this is going to be a shorter version of what I sent out earlier this week. But the simple summary is mini programs. Mini programs, mini programs, mini programs. It’s a staggeringly good and powerful strategic move. I mean, it’s just about the most interesting strategic move I know of any company on the planet. Now, for those of you who aren’t familiar, it’s WeChat. Hey, you communicate, you do private chat with individuals and you do groups. That was a different type of messenger and a different type of social media, which is a complete rejection of basically everything Facebook and Twitter did. And it turns out Alan Jong was right. Steve Jobs was the guy who cracked the smartphone. He figured out how it was really gonna work. Alan Zhang is the guy who cracked social media, social networks. He figured out what the future looks like. He did it first. Facebook has now at least openly said, we’re gonna do privacy focused social networks, which is totally not true. I don’t buy it at all. That it’s like Coca-Cola launching, I’ve said this before, it’s like Coca-Cola launching Diet Coke. Okay, you called it diet because you understand that’s what the market wants now, but you’re still in the caffeine and sugar business. You didn’t change that part. Well, WeChat is not in the surveillance business. They are not in the business of, I need you to spend all day long on WeChat passively consuming content as much as possible. And by the way, outrage is a powerful lever to get people to do that. And then when you do that, I’m going to do surveillance capitalism as my business model and try and monetize that with ads and other stuff. They don’t do either of those two things. That’s the Coca-Cola model. What WeChat has always done is we are going to make WeChat an incredibly useful tool to you, but we don’t want you to spend a lot of time there. And we want your communications and postings to be private because people, that is the type of value of of utility that is valuable and healthy for people. People who do private chatting all day don’t have problems in their psychology. They don’t show off. They don’t get fed with envy and Instagram model, this and that. They have very healthy behavior. So on the consumer side, it’s a great model. And then on the business model side, we’re not gonna turn this into surveillance capitalism. We’re gonna show some ads, but not very many. And we’re gonna monetize by other methods. Which is awesome. I mean, he did it exactly right. Okay, you do communications, that was their move. Then they added payment, famous history to this. Alipay thought they had the market all wrapped up. WeChat Pay came in and over one sort of Chinese New Year’s everyone gave out red packets. Look, if you can send messages to each other, you can send money to each other. So it was C2C payments with red packets on Chinese New Year. I think it was 2014. I might have the year wrong by one year. And it just took Alipay by storm. Jack Ma later called it their Pearl Harbor moment where this company came in and just took 30, 40% of the market very quickly. Pretty impressive. Then you go from there to e-commerce. Within all of that, you can pay your phone bill, you can pay for stuff on the street. You know, they basically, those were the steps. Communication, social media, to payment, to e-commerce. And that’s… WeChat as we’ve known it and that’s what Facebook is trying to copy although they haven’t shown much progress in the last year since Two years now since they’ve announced that Many programs is as big as any of that. I mean many programs basically is You can build your business within WeChat instead of you know, you could build a web business. Hey, here’s our web page It’s a compliment to our offline stores or whatever we’re doing, or it could just be our only interaction. We could be an online business, or we could build a mobile app. Same idea, but on a phone. This is one level above that. Forget the webpage, forget the mobile app. The only thing we’re gonna build is a mini app, which is a simpler version of an app that lives inside WeChat. Very powerful idea. It basically builds an upgraded operating system, wall, garden, ecosystem within the desktop operating system of a smartphone. I mean it’s a very interesting move and let’s say you’re, that’s one way to think about it, but let’s say you’re just a store, okay, you know, you’re Zara. I have my own stores, that’s great. and now I want to build online. I can build a webpage or I can build an app, but the truth is people don’t live in those apps. They live in Amazon or they live in Alibaba. Building your Zara app within, building a Zara store within Alibaba is always kind of a little bit of a deal with the devil. It’s like, okay, we’re gonna build our Zara store within Amazon, within Alibaba, and hopefully that will do well, but any day of the week… that platform, marketplace platform, could change the rules on us, cut us off from data, rejigger the search results, so suddenly we’re not getting the traffic. I mean, you’re kind of, you’re not at their mercy, not if you’re as big as Zara, but for smaller merchants, you really are. It’s basically that it’s like, I’m gonna build my store. I can build my store anywhere, or I can build it within a very famous popular shopping mall. Now, if I build it within the shopping mall, The benefits are I’m gonna get a lot of traffic because I know people are in the shopping mall. The problem is next year they can come back and raise the rates on me, or they can kick me out of the mall. So there’s a real trade-off there. The difference with mini programs, as opposed to what I just said, Amazon, Alibaba, really all the marketplace platforms, with a mini program, you’re not renting a space in someone else’s shopping center, you are buying the space. It’s yours forever. You own it. You don’t have to go back to them because many programs, WeChat, they are not in the marketplace business. They’re in the building the infrastructure business, but it’s basically a store that you would own. So it’s a great counter strategy to a marketplace platform, which people have really struggled with. I mean, people really get frustrated with Amazon. You build a big business in Amazon and then they change the rules on you. as a marketplace. And in addition, they also operate as a retailer. So maybe they start selling exactly what you’re selling. Oh, and by the way, they rank higher on the search engine because they own the platform, which India has mostly made illegal at this point. So there’s a lot of trade-offs to doing that strategy. And what most people do is they end up doing both. They build their store within an Alibaba, within a Amazon, within a JD, within a Shopee. And then… They get traffic and they get sales, but they also try and drive people to their own website or store so that they have direct access to their customers and can’t be cut off. That’s the standard strategy. Well, mini programs is the third strategy, which is like build your business within mini programs and you will own it forever. It’s yours. That’s a really cool idea. It’s a powerful idea. And I’ve just given you a bunch of examples in terms of just straight e-commerce, like retail. doesn’t have to be, and this is not called mini retail, it’s called mini programs. It could be other things. It could be content creation. It could be gaming. I mean, look at all the problems the gaming companies are having with the App Store of Apple. Epic Games is fighting Apple over, you know, their percentage of payments that get taken out. When you buy, you know, if you download a popular game, Fortnite, from the App Store on your iPhone, Apple wants 30%, not just of the initial purchase, in this case it’s free, but of all the in-game transactions. And Epic and Apple have sort of had an ecosystem versus ecosystem fight, which is fascinating to watch in that space. And ironically, we’re seeing the same thing in China. We’re seeing companies like NetEase start to, which is a gaming company, starting to fight with the… think it was Huawei they’re fighting with. I have to check that the Huawei app store about the same subject. Okay now if all of that happens within WeChat you’re not downloading a mobile app from the app store of Google. You’re downloading or directly using a mini program within WeChat so it it dodges that whole question as well. So there’s a lot of interesting stuff going on with this whole idea of mini programs. So this was kind of the number one takeaway from the open class was mini programs all the way. I mean, this was clearly their number one priority. The numbers they released, which didn’t get reported in the press, which was well, not the Wall Street Journal Financial Times. I thought that was kind of surprising was their transaction volume. So these are, you know, e-commerce economic transactions in the last year. grew from $120 billion in 2019 to about $240 billion in 2020. So they grew by 100% in the last year, economic value transactions within mini programs. And that’s now $240 billion. I mean, that’s a major e-commerce player. People say, oh, who’s the e-commerce players of China? Well, it’s Alibaba. It’s JD, it’s Meituan, no, and it’s mini programs. They are on the short list as a major player. And if they hit these numbers again next year, I mean, this should be in any breakdown of the e-commerce landscape of China now, should be mini programs. And it generally gets left off all those charts. Now this had a lot to do with COVID because people were buying stuff at home. So there was a lot going on in 2020. But even if you look at 2019, before this happened, the numbers were going up. And for all the obvious reasons I just mentioned, it makes a lot of sense. Now, how do you think about it? I basically think about many programs as an upgraded operating system. The two operating systems of the world, which is turning into a major problem for lots of people, the two smartphone operating systems, the Duopoly, Android, iOS. Ironically, who is having the biggest problem with these two companies and their international global power? Donald Trump and Huawei, which is an interesting combination. Because Huawei got cut out of Android when they got placed on the entity list and they are now working on their own operating system, Harmony OS, which I’m hopefully going to talk to them in the next week. I just put in a note to them the other day that I want to talk about Harmony. The other person who got racked. was Trump, as Silicon Valley kind of. formed a cartel arguably and basically banned him from everything in one day, which is a very important action to think about. Part of that was Apple and Google, which control iOS and Android. And a lot of his supporters moved over to a company called Parler. And within the next 24 hours, both of those companies, Android, iOS, took down Parler. it disappeared. So that duopoly in terms of operating systems for smartphones has been a pretty important player in the last month. Ironically, it’s Huawei and Trump, which is kind of funny to think about. Anyways, so there is this idea that there needs to be a third operating system. And when you build an operating system, you don’t just code. I mean, yeah, that’s part of it, but you have to build a developer ecosystem. It’s not just the, hey, we’ve got the operating system. It needs to be on the smartphones and you need to have hundreds of thousands of developers who make their apps that go in the store, which is what Harmony is probably the best player to emerge as a third operating system, which makes sense. I don’t think there’s any reason all the world’s smartphones run on two operating systems out of Silicon Valley, when by the way, the vast majority of smartphones sold in this world are from Asian companies, Chinese companies, Korean, others. And oh, by the way, the one company out of the US that does sell smartphones, Apple, they make all their iPhones in Asia as well. So that’s kind of a weird historical anomaly. Anyways, you could argue that, okay, Harmony might be another one, but I think WeChat has effectively emerged as a new operating system. And they’ve upgraded it. Operating systems before were kind of like, here’s the screen of your phone, you go to the app store, you’ve got maps, you download a bunch of apps, you’ve got some core functions. It doesn’t really include certain important functions like social media, like communication, and like e-commerce. If you view WeChat as an operating system, it’s not just an operating system where you can build many programs. It’s also based on communication, payment, e-commerce, and many programs. I think it is a more robust, and I would argue, upgraded version of what an operating system should be. It would be like if Android was also integrated with, not Facebook, because I don’t like them, but a social media, where the operating system doesn’t just work on what’s on the smartphone, but everything in the operating system builds on top of a social network as well as a desktop platform. That’s a powerful idea. And an integrated payment mechanism, which would be WeChat Pay. So I view it as basically, an upgraded operating system. And right now, I think we’re looking at Mini Programs 1.0. But I think Mini Programs 2.0, 3.0, what it’s gonna become is a really important question if you wanna put a value on WeChat and therefore Tencent. You know, when WeChat was originally launched in 2011, this is the 10-year anniversary, you know, if you had valued it then versus five years later when it had payment. it would be a dramatically different number. That’s how I view mini programs today. I think we’re gonna see a dramatically different number in five years. And that’s my question for you today is, how would you put an economic value on mini programs three to five years from now? Okay, point number two, WeChat search. This is another subject that was talked about a lot, and both of these were actually talked about in the last year as well. These are not new things. WeChat search. That’s a really compelling idea. And it follows from WeChat many programs. It’s one of the, you know, I generally say, oh, pretty much if it’s on a smartphone, it’s better in China than say the US. I have two phones. I have a US phone and I have a China phone. And everything in one is better than the other now. It’s ridiculous. That’s not totally true. It’s just a fun thing to say. It’s mostly true. Search is much better. outside of China. Google is amazing. I don’t like that they have a surveillance capitalism business model, but you can’t overstate what an amazing thing Google Search is to exist and to get for free. And I’m actually willing to have them do their surveillance mechanisms on me in return for getting to use Google Search. I think that’s a great deal. How much would you pay for Google Search? If they said, you know, this is the world’s best search engine, it costs you $100 a month, I’d probably pay it. It’s an amazing program, so okay, I’ll take that one. ByDoo is not awesome. They’ve had a lot of problems. There’s a lot of issues with companies paying for placements in search results, so it’s unclear how good they are. There’s a lot of issues with hospitals actually. There’s a sort of an, if you have a breakdown by dues revenue, a big portion of their revenue, which is advertising, comes from private hospitals who are using that to drive patients to those hospitals and often selling questionable procedures or at least questionable marketing statements about procedures. And some people ended up getting hurt and it became a big scandal a couple years ago. And there’s ongoing fights between the. hospitals and Baidu about rates. There’s a lot of issues there. I think generally it’s safe to say most people are not terribly pleased with this as a service. They definitely don’t love it like people love Google search. They don’t. Now Baidu Maps is pretty awesome, pretty great. And they have other stuff that’s pretty great. But search has been kind of a difficult issue in China. The second player which people don’t talk about is SoGo. which is a really cool company. It’s got a great history. It’s publicly traded. You can go and look at it on the US. Well, it may not be publicly traded for a while, in a while because Tencent is trying to buy it and take it public. They put the bid in in July. I’m not sure if it’s been approved. I haven’t checked. I think it’s still listed today. But that’s a fascinating company. It’s one of these old school, first generation China digital companies that nobody remembers. you know, founded back in 2004, in that first wave of companies. You know, everyone thinks the first companies in China were Alibaba, Baidu, Tencent, the bat companies were the first giants. Not true. They were kind of 1.5. 1.0 was Sina, Sohu, and these Yahoo portal clones that were launched a couple years before that. And actually you can go a little bit further back into Kingsoft, which I’m gonna write about. I’ve actually finished. It’s going out to the subscribers tonight. I’ve written kind of a long piece on Xiaomi and how it came out of Kingsoft, which I think is an important story strategically. But you know, Sogo was one of these companies that have been around forever. It struggled. Search did better in the PCs than it did in smartphones because you can’t really search a smartphone. You can search online, Google, on a PC, but you know if you search within your smartphone, it can’t search all the information located in all of your apps. Those are all kind of walled off. So, you know, most people don’t use a search engine on to search their smartphone. They maybe go to a browser and then search there, or they go within a program and search there. But it’s kind of fragmented and there’s a lot of sort of walled gardens, which is a problem. Okay, Sogu did well in PC, then it kind of struggled, it got near the end. It almost got bought by Alibaba, then it didn’t. And then a couple years ago, it took a pretty good turn and Tencent started investing in it and basically let them search part of their walled garden, which was QQ and the public accounts within WeChat. They gave them access to be the search engine for that, as well as being a public search engine for everyone to use. And that was sort of a… a parallel system to their own WeChat search, which was arguably not as good. So anyways, this has kind of been percolating for a good five years. Now, why this gets more interesting now and why I think Tencent made the offer to buy this company and take it private in the last six months was because, okay, let’s say you have a search engine that can search all the public accounts in WeChat. They’re probably not gonna let you search all the private chats. I mean, they’re very, they are actually privacy conscious. But what happens if mini programs really takes off? What happens if you have, which it already has, by the way, you got five plus million companies or something. I’ll look up the number, but millions of companies building their businesses within there. What if one search engine is able to search the public accounts of the most widely used communication platform in China, the only one, let’s be honest, and that search engine can also search this massive e-commerce mini programs ecosystem. Because you can’t search everything on your smartphone desktop. You can’t search all those apps. But you could search everything within WeChat, including all their mini programs. So WeChat search becomes a much more powerful idea if WeChat mini programs goes where people think it’s gonna go. It could be as good, maybe better. than Baidu? Because while Baidu can only search the public, WeChat search, which could be a combination of current WeChat search and SoGo, would be able to search both inside and outside of WeChat. How does Baidu compete with that? That’s a really interesting idea. So WeChat search becomes a very interesting strategic move and it follows right on the heels of WeChat mini programs. Okay, point three, last point. Well, two smaller ones. Other takeaways from the meeting, WeChat work and mini games. WeChat work, it’s now called something else. It’s called WeCom. It was WeChat work, which was basically like, look, WeChat is C to C and B to C. It’s how people talk to each other and it’s how businesses reach consumers, their clients, their customers. C to C, B to C. WeChat work was B to B, or business to business, or people within a business, enterprise level chat. And it’s kind of a, they were a secondary company in this space, ironically. Ding Talk, Alibaba was number one. Why was Alibaba number one with WeChat, with DingTalk? Because they basically were too slow and WeChat took off in the consumer space and they realized they couldn’t compete anymore as a communication platform like WeChat. So they shifted their focus many years ago. Well, let’s just do enterprise chat. They built DingTalk, DingTalk became number one. So now on the enterprise side, WeChat was the follower. It’s funny how this stuff happens. Anyways. And they’ve been launching this for the last year and a half. And their pitch, which was effective, when you go to a company, a small company, a large enterprise and say, look, you should use WeChat as your internal chatting function, not Ding Talk, because this is the mechanism where you can talk to each other, but you can also talk to every customer you have or may ever have, because everyone in China out in the market uses us. So this will be your C to M plus your enterprise. And that was a good pitch. That was a good pitch. Now, Dink Talk is also doing well, but WeChat Work was catching, it was doing well, advancing, and then COVID happened, and enterprise, work from home, remote communication took off in a major way, and WeChat Work really took off May, June, July of this year. Took off, did well. And then to avoid being placed on the entity list, they changed their name to Wecom. So technically, because remember when Trump was saying we’re going to ban WeChat in the United States? This was back in August and all the Asian Americans and Chinese Americans who use WeChat to connect with their friends and colleagues and back in China, this was their mechanism, they got very angry about this and. at around the same time, WeChat changed the name to Wecom. And I think that was basically just a legal move to dodge the, you know, no, and probably the government, if they’d continued on this path, which they looks like they’re not talking about it, at least as far as I can tell, they would have then probably extended that to cover Wecom and Wecom maybe would change their name again, you know, just a little game of whack-a-mole, which Huawei is doing the same thing. They just keep changing their companies and. Honor used to be a smartphone system for Huawei, but now it’s a separate company. Okay, it’s a game of legal whack-a-mole. Fine. Anyways, WeChat work, moving ahead quite nicely. The interesting aspect of this is the CRM aspect, that we can do enterprise-level chat, communication, video conference, but we can also keep in contact on an ongoing basis with all your customers. If you’re a retail store, a random woman who sells smartphones in a small kiosk in Chongqing, every customer you can get their WeChat and you can stay in touch with them. That’s your WeChat account, but then your WeChat work account, you keep in touch with OPPO and Vivo company level. So it’s sort of like, and WeChat work is more of like your workforce management tool, but then those same workers would use WeChat, regular version to communicate with their customers. So it’s good for companies like Opo and Vivo that have large sales forces or distributors or whatever. So you manage that workforce with WeChat work and then the sales with the CRM is WeChat. Okay, last bit, mini games. Mini games is kind of a big deal. You know, when you go to an app store, you know, there’s always two lists. What are the most popular apps in Google Play? And then what are the most popular games, right? Free Fire, whatever. It’s a big, huge subcategory of apps. So obviously it should be a big subcategory of mini apps. So mini games are a type of mini program. Big surprise, they’re taking off. They seem to be going after casual gaming. They say that they have reached 500 million monthly average users, MAU, within mini games. So that’s booming, mini programs is booming, WeChat works steadily advancing, WeChat search, big potential opportunity. Those are my strategic takeaways that I think are worth putting on a short list. If you’re following this company, Tencent, if it’s in your portfolio, if you’re thinking about buying it, if you’re trying to figure out its valuation and it’s three to five year strategic trajectory. I would definitely have that in there. I think you need that. And I don’t think a lot of people are doing that that I’ve sort of been following. So that might put you a little bit ahead of other people. Anyways, that’s the first bit. One last, I guess, since I’m sort of touching on the political aspects, there was actually pretty big news out of China in the last week. The anti-monopoly law, which is a huge deal, very, very important, really came into force early 2020. It was passed, right? But it wasn’t totally clear what a lot of the terms mean. This is anti-trust. It’s anti-minopoly focused on the tech companies, which is something every major country is dealing with. The US sort of has the Sherman Act. You know, from 100 years ago, they keep trying to apply this to Google and Facebook. It makes no sense. Europe is maybe a little bit ahead of the curve. It’s easier for them to be a little more aggressive because they’re They’re not really impacting. There aren’t that many digital giants coming out of Europe. There aren’t. It’s a little bit easier for them to be aggressive. The US is, let’s say, behind the curve. Europe is sort of in better shape. And China’s arguably right on the cusp of the curve. They’ve had a decent number of regulations in the last five years related to big tech that have been fairly thoughtful. And every time I read them, I think that’s pretty good. I mean, I don’t agree with everything, but they’re not dumb. The stuff that came out of Australia, we’re gonna force Facebook and Google to pay newspapers. It’s just idiotic. It’s ridiculous. Because Google and Facebook will just say, no, you should pay us. Because you need us 10 times more than we need you. Well, then we’re not gonna be on your platform. Fine, go ahead. We’ll see who needs who, right? California, we’re going to classify all gig workers, gig economy workers like Uber drivers, you’re going to be full-time employees. It’s idiotic. I mean, it’s just ridiculous. And it looks a lot more to me like union self-interest than thoughtful regulations. That’s what it looks like to me. It’s like, it looks like a lot of your political donors have a self-interest here and they’ve… gotten you to do something that looks like it’s in their benefit because it doesn’t make a lot of sense in terms of strategy. But that’s just an opinion. It’s not really my space. Okay. The China regulations have been fairly thoughtful. The e-commerce regulations. Oh, I’m sorry, one last group to keep in mind. There’s the US version of this. There’s the EU version of this. There’s some dopey stuff coming out of Australia and California. And then there’s India, which is arguably just the most unpredictable. They are not hesitant. They take big moves. You don’t always see them coming. They whacked Flipkart. They whacked Amazon. They whacked Walmart and e-commerce. A couple years ago, they’ve whacked and banned 200 Chinese mobile apps in the last year or so. They are decently aggressive versus everybody else. But I, you know, maybe Indian people, people in India maybe. you understand this and it’s not so unpredictable for you. Maybe you see it coming. For me as an outside observer, yeah, it always catches me as high surprise. So there’s India, that’s another category. China, very interesting. The rules against peer-to-peer lending over the last three to five years were fairly aggressive. They had some fairly aggressive regulations on gaming approval where they weren’t. approving any new video games which hit net ease and 10 cent in a major way several years ago, it really hit their valuation, which was a really good time to buy, by the way. Again, none of this is investment advice, but I’m just saying historically in retrospect, the numbers look pretty good. If you look at what they did with Bitcoin, very aggressive there. If you look at what they’ve done in e-commerce, holding e-commerce platforms like Alibaba financially responsible for fake goods that are sold on their platforms. That’s their safety issues with DD drivers, fairly aggressive. So the idea that they’re gonna be, not aggressive, but let’s say active in these companies is not a new thing. It’s been going on for a while. And the actions with guard this year, the big actions were the anti monopoly law. And there were some fairly big regulations regarding securities fraud that were passed early this year where suddenly, you know, it used to be what kind of what happened is, is companies, not necessarily tech companies, small dodgy Chinese companies would go public in the U.S. usually by reverse merger. And then it turns out there was some shady stuff going on and the directors were largely unaccountable. because they were beyond the reach of the SEC and the US and there weren’t terribly strong securities laws for these things in China. Well, that changed early 2020. The laws against these companies, you can be prosecuted now if you commit securities fraud in China. And this was definitely a concern for lucky and coffee when those, and actually the timing was very similar. That law went into effect a couple months, I’m sorry. That law went into effect in early 2020 and within weeks. they took their first action against luck in coffee, which was Chinese directors. Okay, that happened in early 2020. The other big one was the anti-monopoly law and people didn’t quite know what it would mean because the definitions of what constitutes a monopoly were not clear. And the other thing you always have to keep in mind with China, there’s always two questions. What is the law? To what extent is it gonna be enforced or not enforced? A lot of times, you know, stuff is on the books, but everyone knows it won’t be enforced. So it’s fine. Private ride sharing like Uber and DD, not taxi hailing, but ride sharing where it’s someone else’s car. That was not legal for most of the time those companies started doing that. But everybody knew it. There was a lot of signals from the government. It’s fine. But then they eventually did send signals. We are going to start enforcing this. They will usually give you a heads up. By the way. if you default on a corporate bond, corporate debt, which was very common in China, we are gonna start letting those default. And they give you a heads up, and that actually happened a couple years ago. So it’s the same thing. Okay, what is the anti-monopoly law? What are the definitions? And to what degree is it gonna be enforced or not enforced right now? You always have to know both. And they came out last week, basically saying, here’s the definition for the anti-trust anti-monopoly law, talking about tech companies in China, and they gave specific definitions and they are clearly talking about Alipay and WeChat Pay. They’re probably talking about other companies, but clearly those were on the short list. And they basically said, so far, as far as we can tell, if a single company has over 50% of the market, that will trigger an antitrust review. One company, 50% of the market, the demand side. If two companies together have over two thirds of the market, 66%, that will trigger a review. And if three companies have over 75%, that will also trigger a review. However, if one company has less than 10%, I think that is excluded, but I’m not sure about that last part. This is from what I’ve read in the last couple days. That’s clearly WeChat Pay and Alipay hit those numbers. Clearly they trigger. Okay? And Taobao, it’s a little different when you start talking about e-commerce, Taobao, T-Mall, because it depends kind of how you define it. Do you count mini programs? Do you count services? Do you count products and services together? But for payment, it looks like that hits those numbers. Okay. That’s really smart. It’s really smart. Because as I’ve been saying, if you’ve been following this class for the last year, the world has moved from an age of constrained supply to abundance. It used to be you became a powerful company by your assets, by controlling the supply. We have all the Walmart stores. We have all the hotels on the beaches. We have the biggest factories. We control the railroads. You control the assets, the production, the distribution. You control the supply side of the equation. And if you got powerful there, you could start to abuse your consumers by raising prices. Hey, we’re the only supermarket in town. Prices are going up 10%. Hey, we control all the steel, the trusts of the United States in the late 1800s. We control the steel. Therefore, we can raise prices on people. And that’s why antitrust was about busting the trust. The Sherman Act was about busting that situation of too much power on the supply side, production, distribution, retail. Okay, but that doesn’t work when you’re talking about digital platforms. It doesn’t make any sense. Google doesn’t, well, let’s say, like Facebook doesn’t control the supply of anything. What Facebook controls is demand. And I’ve been saying this over and over, the fight. is for demand. It’s for demand side power, attention, engagement, user number. That’s how you get market power. And if you get that, then you can pretty much squeeze the suppliers. But none of that hurts, necessarily hurts the consumers. In fact, Google gives you their services for free. Facebook gives it for free. So it was a real conundrum for these antitrust laws. How do you apply that to this scenario? And people kept trying to apply it. And it was clear it doesn’t make any sense. You need a series of laws, regulations about demand side power, not supply side power. Well, the laws that this antitrust definition that came out of China this week, it is a demand side definition. If you have more than 50% of the market as one company, bam, you get a review. If you have, so let’s extend that. If you have over 50% of the search activity by consumers, on the demand side, bam, that’s a review. It’s a demand side approach as far as I can tell. And I think that’s really thoughtful. I think it’s really, really interesting. Okay, I didn’t mean to go onto that so much, but I’m gonna go through So Young quickly because this turned into a longer talk than I thought it was gonna be. But for those of you who are subscribers, the question to think about and it’s worth taking some moment, try to put a number around the total addressable market for mini programs for WeChat and therefore Tencent. How would you, you’re gonna have to come at that number from top down. There’s no way to add up lots of transactions and build your way up. It’s not a micro calculation. You’re gonna have to think about the entire space of e-commerce, gaming, all of that. Figure out a percentage and do a top-down ballpark figure for how big could this thing. be. And I think it’s worth your time either stop the podcast now, scribble down three numbers, try and come up with it. Or if you have this company in your portfolio, if it’s on your watch list, put that as a key question in your checklist and try and take it apart. Okay, I just checked how long I’ve been talking. That’s too long today to go on to another company at this point. So I’m going to hold off on SoYoung. I’ll cover that one in the next one. a company like WeChat, you know, for those of you who have ever taken my class in person at PKU or SEAPS or somewhere, in my investment class, you know, I talk about nine questions, which is every company I look at, I go through nine questions and I force myself to put an answer down. I don’t just read and think, oh, that’s interesting, because that stuff goes in one ear out the other. You know, I have a process and I force myself to write down. One, my analysis, and then two, to write down my answer to nine questions. And I have to get a hard answer to those. I force myself to make a decision, because there’s so much gray. There’s so many pluses and minuses that I just force myself to make the call. And then I write it down, and then I put it in a file, and I go back and I look at it years later, and I say, was I right or was I wrong? How was I wrong? What was my process? And of my nine questions, which I will lay out in a subsequent podcast, I guess. The first two are always about company quality. The first two questions, one and two, are about company quality. Is this a great company, a bad company, an unpredictable company, an attractive company? Maybe it’s a bad company, but it’s very predictable. I mean, there’s different things I look at. When you ask people to rate the quality of companies, some people talk about, oh, I only want companies that have dividends. I only want companies that are high growth. I don’t care if they produce cash flow. So people have different definitions. I have very specific ones. But I’m always trying to get a read on that. And then I move on to say questions three or four, which are about valuation. And why it might be cheaper, why it might be expensive. But I’m trying to get to an answer like, hey, this is a really awesome apartment in Beijing. That’s the quality, high quality, great location, great view. Okay, the quality of the apartment, I understand that. But what’s the price per square meter versus what’s normal, whatever. Okay, but it’s very expensive, it’s overpriced. if you were to do like a cashflow valuation. Those are separate questions. That’s classic value investing, right? And, or this is a garbage company, but hey, this thing is way under priced, even for a piece of garbage. That might be another way to do something. So I’m always trying to break it down into those two questions. Okay, now when you look at WeChat, the problem of course, and within question three or four, I look at what’s the price versus the value. That’ll be question three. Question four is what would be the reason for the difference? which is an important idea. Like if I tell you, hey, I got this apartment, it’s in Beijing, I’m trying to sell it, the average square meter for this building is $5,000 per square meter, but this one is 4,000. So it’s underpriced, question three. The normal reaction is, okay, what’s wrong with it? Why? Question four. So what I’m looking for when I look at a company like WeChat is… Look, everybody knows it’s a great company. The days are long gone where you could be like, ooh, I saw WeChat before anyone else. Everybody knows that. Now a company like Shopee, a lot of people did very well investing in Shopee, Garenacy, because they understood it was a great company before most people had even heard of it. That’s spotting a great company before other people, smaller, still growing, early days, maybe not showing up in the financials yet, but the, you know, qualitatively it was there. Okay, WeChat, too far for this. So something like WeChat is like, I’m looking for something that I think people are getting wrong. Everyone knows it’s great. What would be a reason people would underestimate or overestimate the value? You know, what would be something significant that’s fuzzy or difficult or strategically hard to understand? That’s why I honed in on many programs in search. Because I don’t hear anyone talking about, well, I mean. full-time people who do this for a living, it’s in their portfolio, yeah, they’re talking about many programs. But even then, I don’t see people putting a number on search yet. They could be underestimating it, they could be overestimating it. And so I’m looking for something like that. That’s why a company like this, that’s where I’d gravitate to. I guess I better change the two concepts for today since I didn’t go through so young. Okay, the two concepts for today. If you look at my digital competition pyramid. Companies that are higher in the pyramid, stronger at both levels, are higher quality in my book always. That for me is my touchstone, competitive strength. Doesn’t mean you’re gonna make a lot of money, but it definitely means life is a lot easier and it’s a lot more predictable and easier. So company quality increases as you go up the pyramid in my book. Top of the pyramid, winner take all, winner take most. It’s a special category, a very small number of companies are untouchable. more or less. 10 cent is in that bucket. Very few companies are up there, 10 cents up there. And so that’s sort of top of the pyramid, 10 cent, highest quality. WeChat is a winner take all scenario. Mini programs very likely could be winner take most, but one of the ways, so you can get to that position by having real strong competitive advantages, having a dominant platform business model. Another way you can get to that position, and I’ve put this in my list. If you look at the graphic, you’ll see it under there is complementary platforms. When a company goes from, hey, I’ve got one platform business model, Shopee, and now I’ve got a second platform business model, Garena, and now I’m building a third platform business model, Airpay. Three different platform business models, that’s going from being the Velociraptor, the Indominus Rex, the monster, the dinosaur, that nobody can… beat to having three of them hunting together as a pack. There’s so many advantages when you can build effective complimentary platforms. They don’t all have to be dominant in themselves. I don’t think Ant Financial has three dominant platforms. I think they’ve got one dominant platform, one potentially good one, and one sort of complimentary but not dominant. They don’t have to all be strong, but multiple platforms tend to help each other. You can share users, you can lower your customer acquisition costs, you can share money, you can share data, you can share IT infrastructure. There’s a lot of ways you can, you know, because we’re in a connected world with platforms. So complementary platforms can do a lot of things together that traditional conglomerates couldn’t do, which weren’t naturally connected animals. So in that little top of my pyramid, if you look under winner take all winner take most, you’ll see a couple bullet points of examples. One of them under there is complementary platforms. And that’s one of sort of my key concepts I look for. And when I see a business going from, hey, you’re building a good platform, that’s good in one level, but if you’re building two or three complementary platforms, it really gets my attention. Tencent complementary platforms. People often would call this an ecosystem. I don’t really know what that word means very much. Well, sometimes I do, but let’s say complementary platforms is a… clear subset of ecosystem. I think that’s a good way to think about it. So anyways, when I look at Tencent, that’s what I see. I see complementary platforms. That’s when I look at Alibaba, that’s a subset. So those are your concepts for today. Digital competition pyramid and complementary platforms. And that is it for the content. But your question, try to put a number around the economic value of mini programs in three years. I think that’s a great number to know. Just ballpark it. It’s going to end up being a guesstimate. If you can’t figure out what it’s going to be, which you probably can’t, try and put a ceiling and try and put a floor. Look, I don’t know what this thing is going to be, but I know it’s not going to be less than this. If you can put a lower minimum on it, that’s all you really need to put evaluation on it, more or less. Okay, that’s it for the concept today. WeChat mini programs, try and value it, your main ideas, complimentary platforms, digital competition pyramid. And this all goes under learning goal, I guess 35, which is competitive advantage and digital competition. As for me, it’s just been another super pleasant week in Thailand. you know, really enjoyable, like always polluted this week, which is a little disconcerting. I guess this is the crop burning time of the year. I don’t really quite understand that. One of the reasons I moved my home base from Beijing to Thailand was I was kind of tired of the pollution. So that didn’t work out terribly well. But I think this is just in January. I don’t think it lasts very long. You know, it is very strange that, you know, I’m sort of nomadic. It’s just my nature. Literally since when I turned 15, I started… I left my hometown and I started, you know, going from California back east to school, to college, to the UK, to Sweden, to Latvia, you know, New York, Palo Alto, Los Angeles. I mean, I’ve lived everywhere. Saudi Arabia, Riyadh, Lebanon, Paris, Shanghai, Beijing. You know, it’s just my normal state. COVID has sort of forced me to be non-nomadic for a year, which is interesting. And I guess the big discovery was, what a nice place it is to live here in Bangkok. I mean, I’d always been coming here for 15 years, flying in and out, go to the beach, but I’d never spent much time here. And I never thought it was particularly like, oh, that’s a place I’m gonna live. I just thought it was a city. But after living here for now full time for a year, I can… man, if there were two to three cities in the world that I would rate as the best places to live, New York City would be on that list, it’s pretty amazing. And I’d put Bangkok on the list. And I didn’t see that coming, I didn’t know that. Maybe everyone knew that but me, but I didn’t. But it’s absolutely wonderful place to live. People are so friendly all the time and life is so nice. As my latest thing, last week my funny thing was there’s a water monitor. These water monitors, they’re big lizards, The second largest lizard after like the Komodo dragon is the water monitor. But water monitors don’t care about people, but they can get big like seven feet long. And I’d seen them before. You see them, you know, when you get out of the city, there’s a water monitor that lives in the, uh, the little park that’s part of my condo complex. He seemed in the grass sometimes he’s pretty big. That was the discovery last week. Uh, this week’s discovery was there’s a, there’s a somewhat older woman who sells pineapples on my street. There’s all these little cards people come up on their, their motorized carts and they sell everything from sausages to food to desserts. And this lady, she has a big bucket of pineapples and she cuts them up into pieces and puts them in little plastic bags. And she’s just the nicest woman. And I keep going to buy pineapples and she knows me and she has a little, whenever she has a special pineapple, like here’s a good one. She cuts it up and puts it aside. I don’t know how long she holds it for me, like all day long, but whenever I go, there’s a special one she put aside just for me. And it’s little stuff like that. Every week there’s something where like, God, that’s really nice. You know, I lived in New York for 10 years. No one ever did anything like that for me, not once. We were not nice people, New Yorkers, and I was one of them. We were not pleasant people, generally speaking, in public domains. So anyways, that’s… My little fun thing for today. Okay, I’m gonna let you go. This has been a bit of theory. I hope this has been helpful. This is gonna be the process going forward. A lot more companies, questions, and then I’m gonna draw on the concepts and you can sort of go and look them up if it’s something that’s new to you. But otherwise, that’s it for me. I hope everyone is doing well. I hope you’re doing, staying safe, and I will talk to you next week. Bye bye.