Allen in his video speech gives out his thoughts on how people’s life is shaped by information and the latest developments on wechat. Jeff gave comparisons between wechat and facebook. He has better opinions of wechat. However, I have to say as a social network platform, there is no big difference between wechat and facebook in terms of addictiveness, intrusion of privacy,bragging and showoff. Maybe Allen invented the wechat for people to get conneted and communicate, but his boss Tony Ma has different idea.
Waiting for part 2. Love the content. It seems not easy for PDD to pivot from customer attention to spending. Chinese E-Commerce is far more advance than any country in the world.
I will try to write something about this. The moat can not be view in isolation and needs to be compared to the moat of other competitors and the paramount objective of E-commerce is to gain market share.
one of the point I’m skeptical about is regarding JD logistical advantage. I do not understand why Cainiao network which has a larger market cap (the last time I checked) than JD logistic can be much less competitive than JD.
Hi Jeff, I’m a new subscriber. Really enjoyed the content so far.
Good analysis on Zhihu. You are sharp in calling out its disproportionate Sales and Marketing spend. The situation, however, reminds me of another of your favorites, PDD. It seems to have also relied heavily on S&M. As a matter of fact, its astronomical spend in this area has stubbornly kept its profit in the red despite the meteorite topline growth. ( 2019: RMB27B S&M vs RMB30B Revenue; 2020:RMB41B vs RMB59M Revenue). What’s your take on PDD’s Marketing spend? Is it different from Zhihu’s? One of PDD’s key competitive advantages is its value for money. The question is without the heavy promos, will this value proposition stand on its own?
Nice illustration of a set of competitive tactics. I like the distinction between these short-term tactics and the marathon operational advantages.
Regarding the TikTok saga in 2020, I’m not sure it was “dirty tricks” by the US Tech companies. It felt more of a move by the US government in a political war out of ideological differences. Another example of dirty tricks could be Microsoft Bing copying Google Search results.
I think your five questions are right on the mark.
In terms of sustainability, Dingdong smells more like Mobike than Meituan. Meituan achieved profitability through expanding to the adjacent service of OTA, which has much better enomonics; Amazon did so by expanding to Clound. DDL needs to find something like that soon.
Very informative. I had never heard of Philip Fisher, the exact name, until this article, while I had heard of “growth investment.”
Besides Tencent, Google is perhaps another example of the type 1 innovation company, just like Tencent? In that sense, perhaps the key difference between type 1 and type 2 is really software vs hardware, where the former allows real-time continuous innovation and the latter requires quantum-like cadence?
And if we try to go back to “first principles,” where do the four distinguishing characteristics of growth companies, ie, excellent management, sustained innovation, outstanding sales and rigorous cost controls, come from? I suppose people? Especially the founders?
Speaking of Buffet vs Fisher (proxy for Value vs Growth), I wonder which one produced higher annualized returns over their investment lives? 🙂
I think the problem with Fisher is there just aren’t that many of these companies. he found like 1-2 every decade. Buffett has a much bigger pool of companies.
all the more powerful? just imagine if one had put all his/her investment in Tencent or Netflix over the last 3 decades.
Diversification or Diworsefication? To borrow a term from Peter Lynch. 🙂
Interesting angle. At the same time, Logistics is by nature very labor and capital intensive and low margin. Now with JD Logistics spun out and listed separately, will it be worthwhile to have a look at it on its own merits?
Thanks so much for introducing another Investment giant and his approach. Super interesting.
What Tom Rusou said was so true even for China to probably 5 years ago, when some domestic brands only started to challenge the dominance by the foreign brands. Brands that came to mind are Nike, P&G, and Starbucks. While Nike and P&G have been challenged now, Starbucks is still pretty much the only game in town.
Thanks for the timely and insightful piece. I was just looking at this Company a few days ago.
If we think of PDD broke through by being “Disney + Costco” for China’s countryside consumers, we may be able to think of BZ as 51Job + TikTok for China’s blue collar workers. I see this as the entry point for BZ but definitely not the end point. What’s particularly impressive is BZ has reported Non-GAAP profit (excluding Stock Based Compensation) in its recent 2021Q2 earnings. It appears the model has a lot of legs, potentially another truly China-bred innovation.
I think this it is mostly about AI-driven matching as superior to search. it works in video. Or at least it complements it. I’m not totally sure it works with recruiting. But i do know that most recruiting websites suck. Uploading resumes. Searching for qualifications – instead of by personality and cultural fit. So if what they are doing works, it could make a big difference. I’m not sure how well it does yet.
Good point. I think that’s perhaps why they picked SME + Blue Collar jobs as the entry point, where personality and cultural fit arguably play a smaller role in matching. Incidentally that’s 50% of China’s total recruiting market, according to the company. From that they can train their algorithms and move up the ladder. Of course, as you said, there is no guarantee the algo trained on blue collar jobs will work well on white collar jobs.
yeah. they also said that blue collar change jobs more frequently. platforms and network effects require standardization. So you can scale up. The more complicated the service, the harder it is to do that.
Thanks for the objective analysis. A WeChat Official Account article (in Chinese) about Ding Dong giving a unique cultural perspective, regardless of the could-be promotional purpose. Some business strategy highlights resonate with your points.
Thanks for this thought-provoking piece. Love it that you are applying your strategy framework to make predictions, just like in Science. It’s truly rubber meeting the road.
My touchstone to any blockchain based business idea is asking the question: how will it work better than on the traditional (centralized) platform? The vast majority of the ideas out there can’t produce a convincing answer. On that point it would be helpful to delve a bit deeper to FTX to explain why it works better than the conventional financial platform.
Secondly I agree with you DeFi has the potential to become one of the first truly successful use case of Web 3.0, arguably, mostly thanks to Finance’s numeric nature.
At the same time I also think the NFT space has the potential to contend for that prize, for two reasons: 1) it’s native to Web 3.0. 2) The global art market has been so opaque for so long it lends itself for disruption and web 3.0 might just be that magic pill.
I think for most products it has to have a better solution that a platform. Which it doesn’t.
But for institutions doing trading on SFX they just want another way to make money. It doesn’t have to be better. Just profitable.
NFT’s don’t make that much sense to me. But neither does the art world.
I think speculation is driving both as well.
yeah. I kind of skipped over the wallet part. I think the exchange is clear but the custodial wallet is interesting. I thought it was similar to a checking account, just a service. But now I’m not sure what it is. Reading more about coinbase right now.
Jeff, thanks. You have previously observed that a big reason for SEA’s success over Lazada in SE Asia has been their ability to localize so well (better jockey”). And Shopee so far has apparently been able to succeed despite not having Lazada’s “faster horse” infrastructure advantage. During your visit to Brazil have you seen any evidence that they can pull this off in LATAM where MELI is the faster horse but with a proven jockey? When you say it will be expensive, I presume it means paying big money to either create their own infrastructure or to buy fulfillment services. I don’t like this prospect either. However I think SEA’s management has shown themselves to be pretty capable and it’s hard to see how they wouldn’t have considered this. Although “considering it” and “pulling it off” are 2 different things. And the whole thing still depends on the crazy ongoing success of Free Fire and its ability to cross-engage users with Shopee. Amazing. I guess we’ll have to wait and see whether this is “the little engine that could” or whether it’s a runaway train.
Good point on Free Fire. I didn’t think about cross-selling there. That could help.
I just think it is a much harder and more expensive play. MELI and Amazon are going to respond. Especially MELI as it has no fall back market. They’ll ramp up their marketing spend. Infrastructure spend. Discounts. etc. They’ll aggressively defend.
Very interesting article and pod. Jeff, I would love to have your analysis of Prime Video not as a standalone streaming video service (as you do in this pod) but as a part of the Prime Bundle. If this is its aim, then Prime Video should be evaluated in more of a “jobs to be done” framework, i.e. is it serving to grow and retain Prime subscribers? Jeff Bezos wants Prime to be so valuable that it would be irresponsible to not be a member. Of course, this also raises other questions for Amazon such as: what is the appropriate level of spending and how do you measure effectiveness?. This seems particularly pertinent as the market shifts focus to cash flows in light of rising interest rates.
To the degree that Prime Video exists to serve the Amazon bundle, it would seem to be a further problem for Netflix in that Prime’s fixed costs can be evaluated against eCommerce spending rather than subscribers per se.
As a parting thought and related to substitutes, the pending arrival of the new Warner/Discovery streaming bundle with must-see HBO shows and endless hours of low cost Discovery programs seems to only up the pressure on Netflix. This is on top of YouTube with very low/no cost production and gaming, which Hastings has already correctly identified as a substitute.
Hey.
yeah. Amazon prime is interesting. For ecommerce, we can view it as a B2C switching cost. it locks in consumers. A competitive advantage (level 2).
But bundling ecommerce plus video, I consider that a soft advantage, which is Level 3. Weaker but still valuable. For bundles, i think about whether they are integrated or not. integrated bundles (like Adobe), where the functionality improves with more bundled services are more powerful. The video and prime bundle are not really integrated. So weaker.
I think we are going to see a lot of innovation in OTT bundles. Netflix is a basic tons of content for cheap bundle. I think there are lots of other plays for content bundles (small volume, high quality?)
jtowson
December 11, 2019 at 3:47pmAny suggestions on how to improve would be appreciated. -jeff
patchateeya
January 14, 2020 at 9:46amThank you
Frank Huang
January 25, 2020 at 11:32amAllen in his video speech gives out his thoughts on how people’s life is shaped by information and the latest developments on wechat. Jeff gave comparisons between wechat and facebook. He has better opinions of wechat. However, I have to say as a social network platform, there is no big difference between wechat and facebook in terms of addictiveness, intrusion of privacy,bragging and showoff. Maybe Allen invented the wechat for people to get conneted and communicate, but his boss Tony Ma has different idea.
How WeChat, TikTok and Chinese Consumers Are Disrupting and Personalizing Luxury - Jeffrey Towson 陶迅 - WeChat Training Institute | Chinese Marketing Courses and Consultation
March 1, 2020 at 11:07pm[…] This content was originally published here. […]
Kanat Rattnaniyompan
August 31, 2020 at 7:37amWaiting for part 2. Love the content. It seems not easy for PDD to pivot from customer attention to spending. Chinese E-Commerce is far more advance than any country in the world.
Chalermdej Leewongcharoen
November 13, 2020 at 4:29amGreat. I love it.
Ruangwith Viwathanatepa
December 4, 2020 at 5:02amI will try to write something about this. The moat can not be view in isolation and needs to be compared to the moat of other competitors and the paramount objective of E-commerce is to gain market share.
one of the point I’m skeptical about is regarding JD logistical advantage. I do not understand why Cainiao network which has a larger market cap (the last time I checked) than JD logistic can be much less competitive than JD.
Wanlapa Rerkkriangkrai
February 8, 2021 at 4:06amWhat abour LX (lexin fintech holdings)? They also run platform lending business.
John Leonard
March 15, 2021 at 6:01pmJeff thanks, informative as always. Sounds like you’d need a mongoose to live at Rawai!
Can you pls provide a link to the Danish podcast you were on?
jtowson
March 15, 2021 at 6:12pmhttps://podcasts.apple.com/dk/podcast/aktieuniverset-e24s1/id1534602924?i=1000512792743
Fu Ming
July 4, 2021 at 8:30amHi Jeff, I’m a new subscriber. Really enjoyed the content so far.
Good analysis on Zhihu. You are sharp in calling out its disproportionate Sales and Marketing spend. The situation, however, reminds me of another of your favorites, PDD. It seems to have also relied heavily on S&M. As a matter of fact, its astronomical spend in this area has stubbornly kept its profit in the red despite the meteorite topline growth. ( 2019: RMB27B S&M vs RMB30B Revenue; 2020:RMB41B vs RMB59M Revenue). What’s your take on PDD’s Marketing spend? Is it different from Zhihu’s? One of PDD’s key competitive advantages is its value for money. The question is without the heavy promos, will this value proposition stand on its own?
Thanks,
Ming
jtowson
July 6, 2021 at 12:56amHey. I worry about the big marketing spend. I find it hard to tell smart big spending for growth vs. desperate spending to keep up the usage.
Fu Ming
July 4, 2021 at 8:31amBTW, Happy the 4th to you!
Fu Ming
July 6, 2021 at 6:50amNice illustration of a set of competitive tactics. I like the distinction between these short-term tactics and the marathon operational advantages.
Regarding the TikTok saga in 2020, I’m not sure it was “dirty tricks” by the US Tech companies. It felt more of a move by the US government in a political war out of ideological differences. Another example of dirty tricks could be Microsoft Bing copying Google Search results.
jtowson
July 6, 2021 at 1:53pmI’m just guessing on the Facebook TikTok thing. But it was a surprising company to focus on.
Fu Ming
July 17, 2021 at 10:32amI think your five questions are right on the mark.
In terms of sustainability, Dingdong smells more like Mobike than Meituan. Meituan achieved profitability through expanding to the adjacent service of OTA, which has much better enomonics; Amazon did so by expanding to Clound. DDL needs to find something like that soon.
jtowson
July 18, 2021 at 4:17amyeah. Agree. I also think meituan was just much more agile. They jump into different things all the time.
Fu Ming
July 20, 2021 at 11:31amVery informative. I had never heard of Philip Fisher, the exact name, until this article, while I had heard of “growth investment.”
Besides Tencent, Google is perhaps another example of the type 1 innovation company, just like Tencent? In that sense, perhaps the key difference between type 1 and type 2 is really software vs hardware, where the former allows real-time continuous innovation and the latter requires quantum-like cadence?
And if we try to go back to “first principles,” where do the four distinguishing characteristics of growth companies, ie, excellent management, sustained innovation, outstanding sales and rigorous cost controls, come from? I suppose people? Especially the founders?
Speaking of Buffet vs Fisher (proxy for Value vs Growth), I wonder which one produced higher annualized returns over their investment lives? 🙂
jtowson
July 20, 2021 at 10:23pmI think the problem with Fisher is there just aren’t that many of these companies. he found like 1-2 every decade. Buffett has a much bigger pool of companies.
Fu Ming
July 21, 2021 at 4:33amall the more powerful? just imagine if one had put all his/her investment in Tencent or Netflix over the last 3 decades.
Diversification or Diworsefication? To borrow a term from Peter Lynch. 🙂
jtowson
July 21, 2021 at 10:43pmha. that’s a good phrase.
Fu Ming
July 24, 2021 at 10:17amInteresting angle. At the same time, Logistics is by nature very labor and capital intensive and low margin. Now with JD Logistics spun out and listed separately, will it be worthwhile to have a look at it on its own merits?
jtowson
July 25, 2021 at 2:24amI went through JD Logistics in pretty good detail. You can see those here.
https://jefftowson.com/category/jd-logistics/
Fu Ming
August 21, 2021 at 7:43amThanks so much for introducing another Investment giant and his approach. Super interesting.
What Tom Rusou said was so true even for China to probably 5 years ago, when some domestic brands only started to challenge the dominance by the foreign brands. Brands that came to mind are Nike, P&G, and Starbucks. While Nike and P&G have been challenged now, Starbucks is still pretty much the only game in town.
jtowson
September 1, 2021 at 9:15amTom Russo has a significant position in Alibaba. He wrote about it in the recent investor letter.
Fu Ming
September 15, 2021 at 12:18pmThanks for the timely and insightful piece. I was just looking at this Company a few days ago.
If we think of PDD broke through by being “Disney + Costco” for China’s countryside consumers, we may be able to think of BZ as 51Job + TikTok for China’s blue collar workers. I see this as the entry point for BZ but definitely not the end point. What’s particularly impressive is BZ has reported Non-GAAP profit (excluding Stock Based Compensation) in its recent 2021Q2 earnings. It appears the model has a lot of legs, potentially another truly China-bred innovation.
jtowson
September 15, 2021 at 3:02pmI think this it is mostly about AI-driven matching as superior to search. it works in video. Or at least it complements it. I’m not totally sure it works with recruiting. But i do know that most recruiting websites suck. Uploading resumes. Searching for qualifications – instead of by personality and cultural fit. So if what they are doing works, it could make a big difference. I’m not sure how well it does yet.
Fu Ming
September 16, 2021 at 12:42amGood point. I think that’s perhaps why they picked SME + Blue Collar jobs as the entry point, where personality and cultural fit arguably play a smaller role in matching. Incidentally that’s 50% of China’s total recruiting market, according to the company. From that they can train their algorithms and move up the ladder. Of course, as you said, there is no guarantee the algo trained on blue collar jobs will work well on white collar jobs.
jtowson
September 16, 2021 at 1:35amyeah. they also said that blue collar change jobs more frequently. platforms and network effects require standardization. So you can scale up. The more complicated the service, the harder it is to do that.
Alex So
October 5, 2021 at 7:17amThanks for the objective analysis. A WeChat Official Account article (in Chinese) about Ding Dong giving a unique cultural perspective, regardless of the could-be promotional purpose. Some business strategy highlights resonate with your points.
3年多，70后老兵挣得100亿+身家：“创业要反对花招技巧”
https://mp.weixin.qq.com/s/s5KNaKnOOIe5bvFGhJ6EGQ
Fu Ming
February 5, 2022 at 9:12amThanks for this thought-provoking piece. Love it that you are applying your strategy framework to make predictions, just like in Science. It’s truly rubber meeting the road.
My touchstone to any blockchain based business idea is asking the question: how will it work better than on the traditional (centralized) platform? The vast majority of the ideas out there can’t produce a convincing answer. On that point it would be helpful to delve a bit deeper to FTX to explain why it works better than the conventional financial platform.
Secondly I agree with you DeFi has the potential to become one of the first truly successful use case of Web 3.0, arguably, mostly thanks to Finance’s numeric nature.
At the same time I also think the NFT space has the potential to contend for that prize, for two reasons: 1) it’s native to Web 3.0. 2) The global art market has been so opaque for so long it lends itself for disruption and web 3.0 might just be that magic pill.
jtowson
February 5, 2022 at 12:34pmI think for most products it has to have a better solution that a platform. Which it doesn’t.
But for institutions doing trading on SFX they just want another way to make money. It doesn’t have to be better. Just profitable.
NFT’s don’t make that much sense to me. But neither does the art world.
I think speculation is driving both as well.
Fu Ming
February 18, 2022 at 10:31amCan you talk a bit more about coinbase.com as a centralized exchange vs coinbase wallet as decentralized?
See
https://help.coinbase.com/en/coinbase/trading-and-funding/buying-selling-or-converting-crypto/link-my-coinbase-wallet-to-my-coinbase-account
jtowson
February 18, 2022 at 11:01amyeah. I kind of skipped over the wallet part. I think the exchange is clear but the custodial wallet is interesting. I thought it was similar to a checking account, just a service. But now I’m not sure what it is. Reading more about coinbase right now.
Stefan Conquist
March 20, 2022 at 4:02amJeff, thanks. You have previously observed that a big reason for SEA’s success over Lazada in SE Asia has been their ability to localize so well (better jockey”). And Shopee so far has apparently been able to succeed despite not having Lazada’s “faster horse” infrastructure advantage. During your visit to Brazil have you seen any evidence that they can pull this off in LATAM where MELI is the faster horse but with a proven jockey? When you say it will be expensive, I presume it means paying big money to either create their own infrastructure or to buy fulfillment services. I don’t like this prospect either. However I think SEA’s management has shown themselves to be pretty capable and it’s hard to see how they wouldn’t have considered this. Although “considering it” and “pulling it off” are 2 different things. And the whole thing still depends on the crazy ongoing success of Free Fire and its ability to cross-engage users with Shopee. Amazing. I guess we’ll have to wait and see whether this is “the little engine that could” or whether it’s a runaway train.
jtowson
March 20, 2022 at 3:48pmGood point on Free Fire. I didn’t think about cross-selling there. That could help.
I just think it is a much harder and more expensive play. MELI and Amazon are going to respond. Especially MELI as it has no fall back market. They’ll ramp up their marketing spend. Infrastructure spend. Discounts. etc. They’ll aggressively defend.
Stefan Conquist
April 25, 2022 at 8:46pmJeff. Enjoyed your pod on Amazon.
Regarding a different word for Winning (Tech Strategy), some ideas:
Captivating, Engaging, Innovative, Progressive, Cutting-Edge
Are any of those better? I don’t know. You can be those things and not necessarily win.
I like Disruptive Tech Strategy. Because that’s mostly what tech winners do.
jtowson
April 26, 2022 at 1:32amHey. I just changed it to US-Asia Tech Strategy. couldn’t think of anything clever, so made it simple.
Gregory Speicher
May 27, 2022 at 2:54pmVery interesting article and pod. Jeff, I would love to have your analysis of Prime Video not as a standalone streaming video service (as you do in this pod) but as a part of the Prime Bundle. If this is its aim, then Prime Video should be evaluated in more of a “jobs to be done” framework, i.e. is it serving to grow and retain Prime subscribers? Jeff Bezos wants Prime to be so valuable that it would be irresponsible to not be a member. Of course, this also raises other questions for Amazon such as: what is the appropriate level of spending and how do you measure effectiveness?. This seems particularly pertinent as the market shifts focus to cash flows in light of rising interest rates.
To the degree that Prime Video exists to serve the Amazon bundle, it would seem to be a further problem for Netflix in that Prime’s fixed costs can be evaluated against eCommerce spending rather than subscribers per se.
As a parting thought and related to substitutes, the pending arrival of the new Warner/Discovery streaming bundle with must-see HBO shows and endless hours of low cost Discovery programs seems to only up the pressure on Netflix. This is on top of YouTube with very low/no cost production and gaming, which Hastings has already correctly identified as a substitute.
jtowson
May 29, 2022 at 5:51amHey.
yeah. Amazon prime is interesting. For ecommerce, we can view it as a B2C switching cost. it locks in consumers. A competitive advantage (level 2).
But bundling ecommerce plus video, I consider that a soft advantage, which is Level 3. Weaker but still valuable. For bundles, i think about whether they are integrated or not. integrated bundles (like Adobe), where the functionality improves with more bundled services are more powerful. The video and prime bundle are not really integrated. So weaker.
I think we are going to see a lot of innovation in OTT bundles. Netflix is a basic tons of content for cheap bundle. I think there are lots of other plays for content bundles (small volume, high quality?)