Global Macro | Fintech | Sommelier
What is Meituan?
The past decade witnessed the dominance of Amazon and Alibaba as ecommerce platforms for physical goods. Recently, a new type of ecommerce platform is emerging out of China — that is, the ecommerce platform for services envisioned by Meituan.
As of its IPO in Hong Kong in Sep 2018, Meituan boasted 340 million users and 4.7 million merchants across its platform. With a market cap of USD 45bn, Meituan has established a formidable platform consisting of unified commerce, merchant services solutions, hotel and travel, and ride and bike sharing.
It took Xing Wang 8 years from founding Meituan to taking it public, and the earlier 6 years of successes and failures have also sharpened Xing to be the fearless leader who’s threatening the kingdoms of Alibaba and Tencent.
Who is Xing Wang?
The legend of Xing Wang started in 2004, when he gave up his PhD studies in the US and returned to Beijing to pursue his dream of the social network. Inspired by FriendStar, he founded a series of social network websites and eventually succeeded with Xiaonei, the Facebook of China.
Xiaonei accumulated 30k users within only 3 months of launching. However, unable to afford to scale Xiaonei further, Xing was forced to sell it to Joe Chen in 2006, who was backed by Softbank, and later changed its name to Renren. Upon leaving Renren, Xing quoted Winston Churchill and regarded the Renren episode as the “end of the beginning”. Rightly so, the story of Xing just began to unwind, as he learned his first lesson here — the importance of capital.
In 2007, Xing was again inspired by another successful American tech company — Twitter, and started Fanfou. You have probably heard of Sina’s Weibo which is now deemed as the Twitter of China, but Fanfou was indeed the forerunner of Twitter’s model in China.
By early 2009, Fanfou had attracted millions of users, but it made a fatal mistake by allowing politically sensitive topics to be circulated online. As a result, Fanfou was taken offline by Aug 2009, which has given other tech giants such as Sina, Sohu, and Tencent to make their own Weibo copying from Fanfou. By the time Fanfou was back online, it was already too late to catch up again. This has marked the second important lesson for Xing Wang — the importance of political sensitivity.
Finally, in 2010, Xing found another gold mine — Groupon, but he was not alone. It was reported that there were once hundreds of startups in China copying Groupon’s model, dubbed “Hundred Regiments Offensive” to borrow the name of the famous battle China and Japan during WWII. Sharpened with the lessons of capital (backed by Tencent) and political sensitivity (government certification), Xing survived the war and Meituan became the dominator in the group-purchasing sector. More importantly, Meituan has learned how to efficiently manage and operate a national-scale two-sided platform, an essential foundation for its future success.
How did Meituan evolve into such a platform?
Conquering the delivery market
Since 2013, Meituan started an online food delivery service. This is a natural extension of Meituan’s group-purchasing strategy from goods to services. However, the food delivery sector was already dominated by first-movers like Baidu Delivery in the professionals market and Alibaba-backed Eleme in the students market (back then, residential delivery was not a huge demand), and Meituan did not have many levers as a late-comer.
One of Meituan’s advantage is independence. Tencent’s support was rather financial than strategic and operational; however, Baidu Delivery was fully controlled by Baidu Group while Alibaba had actively interfered with the management of Eleme. Thus, both of the competitors were subject to the master group’s overall strategic focus shift. The advantage of independence was fully realized especially after the Meituan-Dianping merger in 2015.
Dianping, or the Yelp of China, was a great complement to Meituan’s 2-sided platform strategy. Traditionally, all food delivery services focused only on the consumer side. So merging with Dianping gave Meituan an unparalleled advantage with vast data and services to attract and retain restaurants and merchants as the supplier side of the platform.
Following the same strategy, Alibaba followed the same strategy by trying to combine Eleme and Koubei. However, Alibaba failed to see the need of Eleme to pivot from the students market to the professionals market, because of stagnant growth and low margin in the students market. Eleme saw the need but wasn’t able to convince Alibaba since it didn’t know the details around the delivery market. It was Meituan’s independence that gave it an advantage over Eleme with the nimbleness in pivoting to the professionals market earlier and faster.
As for Baidu, since it already lagged behind Alibaba and Tencent in mobile adoption, its strategy push on online-to-offline was rather short-lived. Hence, senior management terminated the sales and marketing push on food delivery. Moreover, Baidu lost key talents to Meituan — in Apr 2015, Puzhong Wang joined Meituan from Baidu, who is now fully in charge of Meituan’s delivery services. By Aug 2017, Baidu has officially given up delivery and sold the business line to Eleme, dba Eleme Star.
As of now, Meituan has conquered the food delivery market in China, taking up over to 60% of market share by 2018 up from 30% in 2015. Meanwhile, Eleme owns about 30% of the market share and the rest 10% is roughly covered by Eleme Star or formerly Baidu.
Deepening merchant services
Beyond Dianping’s core functionality, Meituan has also acquired payment service provider Qiandai in 2016 to roll out the full-scale restaurant and merchant services. It even started to offer supply chain solutions to restaurants for fresh and frozen produce, further enhancing the supply-side stickiness on the platform while enriching platform-wide data dimensions and granularities, which was key in optimizing recommendations and deliveries for consumers.
Expanding to unified commerce
With its dominance in the food delivery market, the next step was to expand into the delivery of other foodstuffs and groceries including fresh produce from supermarkets. It’s very likely that the white-collar professionals want to have some fruits with the lunch ordered, or want to bring home some vegetables to cook dinner, but don’t have time to go to the stores. This is similar to the value proposition of Postmates and Instacart, but the US counterparts don’t have the same synergy Meituan has with its food delivery, more specifically around the delivery route optimization and data and AI used in recommendations.
More interestingly, Meituan started working with HLA, a popular store chain of men’s clothes to provide 1-hr delivery, in case a change of shirt or jacket is needed because of food stains. It remains to be seen how this new product line will play out, but it’s definitely a smart wedge into the broader unified commerce market.
Entering ride and bike sharing
From the data perspective, Meituan has the best data on where the consumers are — their offices and their homes, where the restaurants are, and what are the best routes based on delivery. Understandably, if Meituan were to offer a ride-sharing service, it would be very efficient since they have a lot of data on Point A, Point B, and the fastest way between Point A and Point B. So in early 2017 Meituan launched ride-sharing in a few selected city in China. By 2018 when it launched in Shanghai, it reached 30% of market share within only a few days.
It was only half a year after Uber gave up the China market to Didi and when Didi was just started to relax a bit from the years of competition against Kuaidi and Uber. Meituan’s move brought Didi back on its toes. As Didi was recently entangled with driver-related scandals, it gave Meituan a great opportunity to build its own reputation with a fresh start.
In addition, Meituan achieved what Didi had always wanted to do — that is to complete the transportation closed-loop by integrating ride and bike sharing. Didi invested in Ofo — one of the market leaders in bike-sharing — hoping to eventually acquire it. However, Ofo’s founder and CEO Wei Dai had too big of an ego to be swallowed by Didi. As a result, after months of fighting, Ofo is now left aside and struggling with neither additional investments nor acquisition offers. On the contrary, Ofo’s competitor Mobike realized that it’s hard to sustain and scale further under the current unit economic model, without integrating with a larger platform such as ride-sharing.
In the end, Meituan acquired Mobike and became the only provider of ride and bike sharing services at a large scale. This move gives Meituan even more advantage on data in terms of scale, dimensions and granularity over its competitor Didi and Eleme/Alibaba.
The new frontier in hotel and travel
Another new vertical Meituan recently tapped on is hotel and travel. With strategic investments from Priceline and a vast user base, Meituan launched the product in early 2017 and has attracted more than 340 thousand hotels and 16 thousand tourist attractions all over China to join the platform. Meituan’s advantage in big data and platform stickiness has generated fast-growing numbers and has put Meituan into a head-to-head competition against Ctrip, the OTA market leader in China.
Meituan’s competitive edge?
In summary, Meituan achieved high efficiency in management and operations through the competition in the group-purchasing market, and leveraged it to establish a two-sided platform for consumers and merchants: from food delivery to broader services, from merchant services to supply chain solutions, from ride sharing to bike sharing, and from city lifestyle to travel and tourism. The more horizontal aggregation, the richer data Meituan can obtain, and thus the stickier the platform can become.
However, it also means that Meituan is making more and more enemies: from Eleme and Didi to such giants as Ctrip and Alibaba. Competition in the China tech market has always been dynamic and broad-based, and as Xing Wang quoted Winston Churchill in the above-mentioned, this may still be just the end of the beginning.