Meituan

We dive into the history behind Meituan, the juggernaut Chinese "super-app" which dominates China's services economy, offering consumers everything from food delivery, restaurant reviews, travel booking, bike-sharing, movie ticketing, and countless other entertainment and lifestyle services all at the touch of a button. Already China's 3rd largest tech company by market cap (behind just Tencent and Alibaba), Meituan did $15 billion in net revenue in FY2019 and continues to grow rapidly. What makes it so special, and how were they able to become the market leader in such a competitive space? This story is packed with lessons that apply equally beyond China tech to high-growth company building and investing everywhere. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC The Meituan Playbook is available on our website at https://www.acquired.fm/episodes/meituan Links: Meituan's English language walkthrough video: https://www.youtube.com/watch?v=5wxgQVjDviQThe Tech Buzz China podcast: https://www.techbuzzchina.com https://www.techbuzzchina.com/GGV's Evolving for the Next Billion podcast: https://nextbn.ggvc.com/podcasts/Bernard Leong's Analyse Asia: https://analyse.asia https://analyse.asia/ Carve Outs: Extraterrestrial: https://www.amazon.com/Extraterrestrial-First-Intelligent-Beyond-Earth-ebook/dp/B081TTY4NX/John Luttig's newsletter: https://luttig.substack.com https://luttig.substack.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  You've been a VC in my heart for a long time.

• 0:04Ben Gilbert?

  I take offense to that and also thank you.

• 0:19Ben Gilbert?

  Welcome to season eight, episode three of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

• 0:34David Rosenthal?

  And I'm David Rosenthal and I am an angel investor based in San Francisco.

• 0:39Ben Gilbert?

  And we are your hosts.

• 0:41David Rosenthal?

  Ben, your bio there, it's a little different this time. Congratulations, my man.

• 0:46Ben Gilbert?

  Thank you. Very long Seattle, excited for the future of the Pacific Northwest.

• 0:50David Rosenthal?

  It's very exciting. Well, well deserved promotion to managing director.

• 0:55Ben Gilbert?

  Well, thank you. And I mean, frankly, it's most exciting just to have a new $100 million early-stage fund to invest in Pacific Northwest entrepreneurs who also might be acquired listeners. Well, today we are talking about a company that frankly couldn't be further from the Pacific Northwest. Well, maybe it could. I suppose if you're on the East Coast of the United States, you might be literally halfway around the world. But today we dive into a Chinese app that started as a Groupon clone by a founder who had previously started a Facebook clone and a Twitter clone. But this bike-sharing Yelp-esque DoorDash of China is much more than a clone. This AI-powered delivery company is also a ride-sharing

• 1:37Ben Gilbert?

  company. It's a real-world supermarket, a merchant analytics platform, a fintech platform for those merchants who need loans, a travel booking app for consumers, and a way to buy cheap movie tickets. So what on earth is going on?

• 1:54David Rosenthal?

  So you're saying it's like DoorDash and Airbnb and Square and Booking.com and Expedia and Uber and Instacart?

• 2:04Ben Gilbert?

  Yelp, Fandango, Safeway, the list goes on and on.

• 2:09Ben Gilbert?

  So Meituan is what people have dubbed a super app. And if you're confused, well, so were we before we started the research. So over the course of this episode, we will dive in to unpack this curious company, how it became China's third largest tech company behind only Tencent and Alibaba. And it was founded over a decade after each of those two companies. It's pretty crazy. It's like frankly amazing that it's in the same category as those or are quickly rising into that same category. And, and of course wildly displacing Baidu, the classic third in the big three Chinese tech companies.

• 2:45David Rosenthal?

  Yeah, alongside Pinduoduo as well, which we covered last summer. This story is honestly amazing. I mean, we'd heard we'd reference Meituan on the show. Oh, it's the super app. It's this really interesting Chinese thing that is unlike anything in the West. This story is incredible. Frankly, a shame we haven't told it before now.

• 3:07Ben Gilbert?

  Indeed. Well, that's why we have eight seasons of Acquired. Well, are you an acquired Slack member? If not, what have you been waiting for? It is a spectacular community discussing, of course, all things acquired and recent episodes, but more importantly, it is just a genuine and smart group of people having thoughtful, nuanced and respectful discussion about the tech and investing news of the day. You can join at acquired.fm/slash/Slack if that sounds like your cup of tea. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you prove that you were secure once a year on audit or a static PDF, then everyone would nod and you're done.

• 3:51Ben Gilbert?

  But in an AI-first world, that doesn't hold up anymore.

• 3:54David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote "shadow AI" running with no security review at all.

• 4:15Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 4:37David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:55Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. Well, lastly, to keep this short and sweet, if you are not an acquired LP, you should totally become one. Aside from all the things we tell you about the LP program on every episode, we just shipped a killer episode on the state of SaaS in 2021

• 5:36Ben Gilbert?

  with Emergence Capital's newest general partner, Jake Saper, where he dove deep on their recent investment thesis, "Deep Collaboration." Do you have to say "deep" in a deeper voice?

• 5:46David Rosenthal?

  Deep collaboration. I'll handle "deep collaboration." It's also, it's been a big month for acquired guests and hosts in terms of promotions to general partner.

• 5:58Ben Gilbert?

  It is. The wave is upon us. Well, we of course explored the insane state of tech valuations right now in the frenzied market we are in with Jake as well as "deep collaboration." So tune in LPs or feel free to join at acquired.fm slash LP if you are not and we can't wait to see you there. Well, David, before you take us in, listeners, as always, this show is not investment advice. David and I may have investments in the companies we discuss on this show and it is for educational and entertainment purposes only. That's my disclaimer. It is your show to run now. Take us in. Tell us everything.

• 6:36David Rosenthal?

  Well, I sure hope it's for both of those purposes. I mean, equal measures. Okay. Before we dive in, we have to say a big, big thank you to the Tech Buzz China podcast. They did an excellent job covering Meituan and its crazy story. I think among all English language reporting on China tech for Meituan specifically, they did a fantastic job. Along with, as always, the evolving for the next billion podcast by GGV and Bernard Leong at over at Analyse Asia. He used all of their work in this podcast. They're all fantastic. Definitely go check them out if you follow China tech and you definitely should be following China tech, no matter where you live. Okay.

• 7:19David Rosenthal?

  So Meituan, we start history and facts back in February. We're in early March now, so about the same time of year of 1979 in Longyan, China, which is a small, by China standards at least, city of about 2 million people in the southern part of the Chinese coast, kind of not too far from Hong Kong, about like a Shenzhen, six hour drive, sort of north of there, if you have a sense of Chinese geography.

• 7:52Ben Gilbert?

  Are you like on Google Maps?

• 7:53David Rosenthal?

  Yes.

• 7:54Ben Gilbert?

  Okay.

• 7:56Ben Gilbert?

  Like this is, this is a very descriptive explanation here.

• 8:00David Rosenthal?

  Well, the more of these episodes we do, the more I get to know China geography. But yes, I was on Google Maps and we start, so in February 1979 in Longyan with the birth of a baby boy named Wang Xing. And Wang is going to be our protagonist here, one of our protagonists through this story. And this was a pretty interesting time and family he was born into. So this was right at the beginning of Deng Xiaoping's reform and opening in China that we talked about on the Alibaba episode a lot. Also talked about on the Tencent episode. And Xing's father was one of the very kind of first early generation of entrepreneurs

• 8:42David Rosenthal?

  in China after the reform and opening, you know, part of that let some people get rich first doctrine. And so his father owned a cement factory. So a long way from a tech entrepreneur, but he was a real like small business entrepreneur in China in the 80s and 90s. So Xing grows up, you know, in this sort of new middle class, upper middle class family. And in middle school, he gets interested in computers, like so many of us, and he convinces his parents to buy him a clone, this is going to be appropriate, of an Apple II. And then shortly thereafter, he convinces them to upgrade to a PC. Wait, there were Apple II clones?

• 9:26David Rosenthal?

  Of course there were. It's China. So I don't know if it actually ran Mac OS, but it was, you know, some like knockoff of an Apple II. Wow, crazy. Totally crazy. So then he upgrades to a PC. And he also, and this is pretty unique, he convinces his parents to get him a modem. So this is in like the early 90s. The internet, you know, was barely a thing anywhere, but especially not in China, as we've talked about on previous episodes. So he starts going online and doing what early internet users in China did at the time, was they would go on the kind of proto

• 10:09David Rosenthal?

  message systems, the bulletin board systems in China, which literally like every future Chinese tech billionaire was hanging out on these BBS. I know. I feel like, I'm like, I swear to God, I've heard this story before. It's like, I don't know, like Koopa Cafe in Palo Alto or something. It's like literally all of them, they're all hanging out on these BBSs. Pony Ma's there, Jack Ma's there, William Ding from NetEase is there, of course, Colin Huang from Pinduoduo is there.

• 10:39Ben Gilbert?

  You just named five of the 10 most valuable Chinese companies.

• 10:43David Rosenthal?

  Totally.

• 10:43Ben Gilbert?

  Or at least Chinese tech companies.

• 10:45David Rosenthal?

  It's amazing. So Xing's there. He does very well in school. He ends up going to Tsinghua University in Beijing, which is one of, if not the best university in China, where he studies electrical engineering. So he's like very much on the path here. He graduates in 2001 and he does what every dutiful, you know, future Chinese internet billionaire would do. He goes to the US for grad school.

• 11:11Ben Gilbert?

  Didn't he go to University of Delaware?

• 11:13David Rosenthal?

  Yeah. So this is where his path diverges a little bit.

• 11:16Ben Gilbert?

  And David, like this is what 15 minutes from the hospital where you and I were both born.

• 11:22David Rosenthal?

  Yeah. And it's like probably 15 minutes from the hospital. I was actually born in Philadelphia. You were born in.

• 11:26Ben Gilbert?

  That's right. But your.

• 11:27David Rosenthal?

  In Christiana, right?

• 11:28Ben Gilbert?

  Next door neighbor or something was a doctor at the hospital I was born. It's crazy.

• 11:34David Rosenthal?

  But I went to high school in Wilmington, which is the biggest city in Delaware. Let me tell you, Delaware at this time, like, you know, I love it. It's a very beautiful place, but like I was there going to high school at the same time as Xing was going to grad school at UD, you know, 30 minutes away. This was not an internet hotbed, far from it.

• 11:56Ben Gilbert?

  It was an engineering hotbed, interestingly enough, with DuPont and Gore, with all the sort of materials and mechanical, but, but no. Like it actually a pretty good CS school later down the road, but not at this point.

• 12:07David Rosenthal?

  No, like literally nobody is thinking about starting tech companies in Delaware in 2001, 2002, 2003. I can guarantee that from firsthand experience. So I have to imagine that this was like pretty serious culture shock for him. So he stays a couple of years, but then unlike many of the other personalities we just talked about, he ends up dropping out. Because he wants to get into tech and the internet and he thinks, you know, maybe this

• 12:41David Rosenthal?

  isn't the right place to do it. And in 2003, this website does show up amongst students on the University of Delaware campus, a new kind of hot social networking site. I think they actually raised some money from some pretty prominent venture capitalists on university campuses. And Shing is like, this is it. I have found my calling. I'm going to go recreate this in China. Of course, we're talking about Friendster.

• 13:15Ben Gilbert?

  I was gonna say, I thought Facebook was started in 2004.

• 13:17David Rosenthal?

  Yes, yes, it was.

• 13:19Ben Gilbert?

  Quick diversion down Friendster. Isn't there like some affiliation with like Reid Hoffman and Mark Pincus? Like, isn't the Friendster story deep into people who went on to build, you know, phenomenally successful social products later?

• 13:32David Rosenthal?

  I think so. I always get the Friendster story and the Friend Feed story mixed up.

• 13:38Ben Gilbert?

  Oh, that was Brett Taylor.

• 13:39David Rosenthal?

  Yeah, that was Brett Taylor.

• 13:40Ben Gilbert?

  And that was like after Facebook. That was like a 2006, 78.

• 13:44David Rosenthal?

  It was like an aggregator, right?

• 13:46Ben Gilbert?

  Yeah, yeah, yeah. Let's put a pin in this. I think we owe Friendster an episode, or at least an LP episode.

• 13:51David Rosenthal?

  Yes, we got to dive into the history there, especially because it would go on to seed Meituan. So Shing leaves Delaware, he moves back to China, he goes back to Beijing, and he hooks up with some of his former Tsinghua classmates. And he starts Duo Duo You. Apologies if that's not the exact correct pronunciation.

• 14:14Ben Gilbert?

  Yeah, we probably need to say that for several things on this episode.

• 14:17David Rosenthal?

  Yeah, several things. We apologize. We're trying our best. Literally translates as many friends. And the idea is he's gonna, you know, just like he saw Friendster kind of take hold at the UD campus, he's going to target college campuses in China, build up this social networking site. Unfortunately, like Friendster, it doesn't really work. It's probably too early. It's too early for Friendster in the US. In China at the time, you know, college students, yeah, they probably were using computers. But you know, your average person did not have access to a PC. Mobile was still distantly on the horizon.

• 14:57David Rosenthal?

  So he tries to pivot Duo Duo U into a sort of different kind of service, still for students, for Chinese students studying abroad to kind of stay in touch with each other. That doesn't work either. But then in 2005, Ben, as you said, Facebook arrives on the scene. And so Shing is like, ah, okay, I've got it this time. And he realizes that maybe he made a mistake the first time. And that was that he didn't clone Friendster exactly thoroughly enough. He's not going to make that mistake this time. So he and the team, they created a new site. They call it Xiaonai, which literally means on campus.

• 15:41David Rosenthal?

  And they take Facebook, they take Facebook, thefacebook.com. And they recreate it to the exact pixel, like the same shade of blue, the same text, the same layout, the same everything. Literally, the early versions of the site had the footer at the bottom of Mark Zuckerberg production.

• 16:01Ben Gilbert?

  No way. How, like, how do you clone that? Is it like they didn't know what it meant? So they were like, we should grab it.

• 16:08David Rosenthal?

  He definitely knew what it meant. It's just like, no, we're gonna like, because people, you know, people in China were hearing about Facebook. And so I think the idea was like,

• 16:15Ben Gilbert?

  It's like, let's convince people this is Facebook.

• 16:17David Rosenthal?

  We're gonna pretend to be Facebook.

• 16:21Ben Gilbert?

  Fascinating.

• 16:22David Rosenthal?

  Amazing, amazing. But it works. A lot of people start using it. A lot of Chinese students start using it. It works so much that, just like the real, the Facebook, they need to start buying servers more than they can afford to pay for it themselves.

• 16:39Ben Gilbert?

  I feel like I'm watching a knockoff of the social

• 16:41David Rosenthal?

  It is totally a knockoff of the social network. This is so great. And it's even better by the twist that this story is going to take later on. So they probably try and go raise money. They can't raise money. I bet VCs at the time were like, this is crazy. You literally say a Mark Zuckerberg production at the bottom. I'm not going to invest in this.

• 16:59Ben Gilbert?

  Well, the Chinese venture ecosystem is also dramatically underdeveloped. I mean, you think Sequoia China only started in oh, four. And like, I think the venture ecosystem before they got there certainly existed, but it wasn't anything like what the US venture ecosystem looked like in the dot com era.

• 17:16David Rosenthal?

  No, and I don't think it was particularly risk seeking. We'll get to this later, but yeah, Dianping actually was one of Sequoia China's first investments. And that wasn't until 2006, which is the same timeframe as this.

• 17:30Ben Gilbert?

  And David, you're dropping names we haven't gotten to yet. Meituan will eventually merge with Dianping, become Meituan Dianping, and then drop the Dianping. It's cleaner and go just to Meituan. And that's how we get that. But yes, you already are putting in an interesting point. That is, the company that they ended up merging with and buying later in a mega crazy merger, that'll be a huge point of this episode, already existed by this point. And this guy is working on a Facebook clone.

• 17:55David Rosenthal?

  Totally. So what they decide to do, they end up getting an offer from another entrepreneur in China named Joe Chen to buy the company. So they sell the company to him for $2 million in October 2006. And Joe obviously wouldn't have bought it if he didn't see the potential for this thing. And you know, the Facebook of China, that sounds like something this could become. He's like, well, but the name though, you know, Facebook already at this point is starting to expand beyond colleges. And if you really want to go big, you want to be, you know, the Facebook for everything. And so this name of on campus, eh, not so great. Let's change it to a new one that, you know, a new one that incorporates everybody. Literally, why don't we call it everybody? Why don't we call it Renren?

• 18:42David Rosenthal?

  So yes.

• 18:42Ben Gilbert?

  Oh, this became Renren?

• 18:43David Rosenthal?

  This became unbelievably Renren. This is Renren.

• 18:49Ben Gilbert?

  Whoa.

• 18:50David Rosenthal?

  That we're talking about.

• 18:51Ben Gilbert?

  And David, what is Renren?

• 18:52David Rosenthal?

  Renren is the Facebook of China. I presume many listeners know about Renren. It's a public company. But yeah, they became enormously successful. Literally were called the Facebook of China, which is funny, given that they started as a pixel for pixel clone of the Facebook of China. And they raised a bunch of money from SoftBank and Masa back in 2009, 2010. And then they went public on the New York Stock Exchange in 2011 before Facebook. They were the Facebook IPO before Facebook. They raised $740 million in the IPO at almost a $6 billion market cap. And Wang Sheng created the whole thing, but he sold it for $2 million.

• 19:37Ben Gilbert?

  Which you could chastise him for, but it actually was the right decision if you knew what he was going to go on and create and how much more valuable that would become.

• 19:46David Rosenthal?

  A hundred percent the right decision. I mean, it was either sell it or it was going to die. And hey, he's still a kid, right? And he gets $2 million. Great. So what does he do? He says, guys, I can do this all day. This is like 2007. I'm just going to spin a wheel and like roll some dice, pick whichever US internet company, web 2.0, you know, hot company I'm going to, I'm going to recreate. Let's go on to the next one. So he sold, he sold what would become Renren at the end of 2006. By the beginning of 2007, he's back in the game with FunFO, which literally means have you eaten, but it's a kind of idiom that's more like, hey, what's up in China? And what do you think that is?

• 20:30Ben Gilbert?

  What is this, the network that people were using to send, hey, I'm eating my breakfast and my breakfast is, is Twitter?

• 20:36David Rosenthal?

  It's Twitter. He creates Twitter. Again, it's just like, and this one is supposedly, I didn't actually go look at any screenshots or whatnot, but it was, I think even more insidious that you could like, clever would be another way to put it, that you could actually think that you were using Twitter based on how they did the domain names and stuff. It also becomes a huge hit. So we're talking about 2007. Twitter launched in 2006 out of Odeo, like midway through 2006.

• 21:03David Rosenthal?

  Funfo gets 2 million users right off the bat. So that may have been more users than Twitter at the point in time. It unfortunately, though, for Wang Xing, it's so successful that it attracts the attention of the CCP because it's like Twitter, you can say whatever you want on there and people are spreading political dissent on there. So the CCP shuts it down for a period of time. I don't know that this is exactly, but I think it might've been like 12 or 18 months that it was shut down.

• 21:38Ben Gilbert?

  It's honestly amazing that Renren didn't get shut. I mean, I'm sure that the deal was struck there so that, hey, you get to exist as long as we get to have some content moderation on there. But the fact that he was able to build and sell a successful social media company in China is kind of amazing.

• 21:53David Rosenthal?

  Yeah, actually, is a good point. I didn't look into this, but maybe part of selling it and Joe getting involved was maybe around that. I don't know. That's speculating. So Funfo gets shut down and then it does eventually reopen and I think it's still live today, but in the intervening era, Sina Weibo and Tencent move into the microblogging space and it doesn't become a winner. But hey, Wang Xing's like, well, second time, I guess that was technically the third time. He had Friendster and then he had Facebook and then he had Twitter. That didn't work. Okay, I'll go on to the next one. And so now we're in sort of late 2009,

• 22:35David Rosenthal?

  early 2010, and there is a very particularly obvious US tech company, tech in quotes, company that makes sense to clone at this point in time.

• 22:49Ben Gilbert?

  Am I thinking of the right company? They were the fastest ever company to a billion dollars in revenue.

• 22:54David Rosenthal?

  I also thought that billion dollars in revenue, same thing as you. I went and looked it up. It was fastest ever to a billion dollars in valuation at the time, very different than revenue. We're talking about Groupon, of course, which took the world, took the US by storm in the late 09,

• 23:12Ben Gilbert?

  People were losing their heads in the tech community for this company.

• 23:17David Rosenthal?

  Completely, completely going gaga. I mean, now it's kind of cute, right? Like companies, we know companies that are valued at a billion dollars before they've, you know, come out of stealth. But at the time, it was, you know, when series As were getting done at like a $6 million post, that a company, you know, a year old would be worth a billion dollars.

• 23:37Ben Gilbert?

  Complete lunacy. And also, people were, when you say tech company in quotes, like, Groupon took scores of salesmen pounding the pavement in order to go and convince local businesses to do this thing. Their churn rates were terrible because it was awful for the businesses and they would leave immediately. And so they had this awful cost structure, this awful retention lifecycle problem with customers, but they had so much capital in relative to other tech companies that like it was go-go time, pump it all in.

• 24:06David Rosenthal?

  Yep. Well, it was, you know, revenue, they probably did hit a billion in revenue pretty quickly because it was one of those things where like you could pump capital in and get revenue. You just didn't get any profits out of it or anything defensible. So in March 2010, Wang Xing and the team incorporate Mei Tuan, coming from Mei, which means beautiful and Tuan, which means together, beautiful together. And at this point, you know, he's developed, despite his not yet, you know, hitting it big with his cloning factory, he's developed quite a bit of a reputation in Chinese tech entrepreneurial

• 24:47David Rosenthal?

  and venture capital circles. And the Chinese VC industry has matured a lot by 2009, 2010. So right off the bat, they raised $12 million from Sequoia China when they launched in early 2010. And then a year later, in the beginning of 2011, they raised another $50 million from Alibaba. So this is pretty big. Again, these numbers seem quaint today, but at the time, like $12 million essentially seed from Sequoia in China, like that's huge. You're entering this. Mega hot space, then you raise 50 million bucks from Alibaba.

• 25:31David Rosenthal?

  Like this company is crushing it.

• 25:34Ben Gilbert?

  And we'll talk about this more later. So I just want to tease it here a little bit, but you know, raising money from an Alibaba, Tencent, I guess we used to say Baidu, but it hasn't come up much in this episode, or frankly, in recent conversations. They're a VC and a big tech company. They're, you know, they're a FAANG company and a VC all in one. And so they give you a ton of capital because they have a ton of capital. And then they can also really help your business. I don't want to get too far ahead of my skis, but for anyone wondering Alibaba, why are they leading the series A? That's how China works.

• 26:08David Rosenthal?

  That's very much how China works. So there's just one problem though, which is that for all of Wangxing's, you know, capability, vision in a certain sense, it really is vision and knowing what, you know, to clone and how to make it, adapt it for the Chinese market, all the capital behind him, all the great resources. He's not the only one who has this idea that, hey, Groupon might work in China too.

• 26:32Ben Gilbert?

  In fact, he's not even one of like a dozen, or one of like 50.

• 26:36David Rosenthal?

  Or one of 100. He is literally one of 5,000 entrepreneurs in China who would have the same idea and start Groupon companies. You think we're exaggerating? This period is, is like known in Chinese tech history as the, the period of the quote unquote thousand Groupon war and thousand is underestimating. There were, there were 5,000 companies. At one point, 20 to 30 new Groupon clones getting started every single day in China, including Groupon itself, which did a JV with Tencent to enter China, which you know, if you're going to enter China, you gotta do it with Tencent. They do a JV, you know, they think if anybody can succeed here, it's Groupon called Gao Pang. And this just turns into like, this becomes a

• 27:21David Rosenthal?

  bloodbath on the order that like, is unbelievable. Like people in the US, you know, in Western markets think, oh man, food delivery in the US, that was a bloodbath. There were like four different players that were going after this.

• 27:36Ben Gilbert?

  China scale is all we need to say. It's like, oh, in that previous company we were talking about, it's like, oh, well, they had only 2 million users. Like everything in China scale is so much bigger and faster and more competitive and, you know, more gritty. And I mean, the 996 thing is real. Like if you hit onto something. You better be working 99 hours a week, six days a week, or else someone else is going to with your idea.

• 28:02David Rosenthal?

  Yeah, well, definitely somebody else is going to. So the other thing, you know, like you said, Ben, the nature of the Groupon business is there's not really any tech involved. Like you need a website, basically, but the business is local salespeople going to merchants, restaurants, karaoke bars, massage parlors, you know, and the like, and walking in the door and signing them up to get on Groupon and then running marketing stunts, you know, in local cities, getting users to sign up.

• 28:40Ben Gilbert?

  And every city is just as hard to sign up as the previous city. Like you don't really have scale advantages by being already in 50 markets. It's just like, well, no one's in this market yet, so it's war to win that market.

• 28:54David Rosenthal?

  Yep. Now, unlike many of the other thousands of competitors, Wangxing figures out in this process, you know, people were thinking up until this point, you gotta remember, like, the technology adoption curve, the computing adoption curve in China looked very different than the West. You know, most users in China never experienced the internet on PCs. They just went right to mobile.

• 29:24Ben Gilbert?

  Right.

• 29:24David Rosenthal?

  And at this point in time, even that was only just starting to happen. So the people who did use the internet in China were in the tier one elite coastal cities in Beijing, in Shanghai, in Hangzhou, you know, the big in Shenzhen, in Hong Kong, people that had access to computers. So most of these startups were focused on those cities. But Wangxing realized, hey, the tier two, the tier three, the smaller cities, people are starting to get mobile phones or they have access to the internet in internet cafes. And this product, the Groupon product, is actually a really good fit for those cities.

• 30:07Ben Gilbert?

  Hmm.

• 30:07David Rosenthal?

  So he and the company expanded to many, many more cities than a lot of their competitors. And that was one of the key things that helped them. I won't say win because nobody won here, but survive.

• 30:20Ben Gilbert?

  Become one of the few remaining last standing.

• 30:23David Rosenthal?

  Become one of the few remaining last standing companies. And also, you know, having Sequoia and particularly Alibaba Capital and my behind them helped a lot. But by the end of 2011, so this whole cycle plays out in like one year, maybe 18 months. By the end of 2011, there are just a very, very, very small number of these companies left. There's Meituan, there's the operations of the BAT themselves, which they have small operations, but mostly they've invested in companies. And then there is a very, very different company that is still left standing called Dianping that we've referenced.

• 31:04Ben Gilbert?

  Yeah, which is fascinating for them watching, you know, this thousand Groupon war come up around them. They're not in that space really. They had to pivot into that space. It's so fascinating thinking about if you are running the Dianping business, like what do you do with all that media that's happening around you in a very near adjacency?

• 31:27David Rosenthal?

  It's funny, we'll tell the story now. I mean, I could maybe argue they shouldn't have gotten into this at all because they had a great, great business. But the net result of them getting into it is that they then become Meituan Dianping. And now they're the fourth largest internet company in China.

• 31:42Ben Gilbert?

  All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 31:56David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

• 32:10Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

• 32:20David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 32:37Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 32:53David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 33:10Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 33:19David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 33:30David Rosenthal?

  Okay, so unlike Meituan and Wangxing, who, they weren't just unabashed about copying, it's like, that was their thing. They're like, yeah, we copy, we do it better. Like, that's what we do. Dianping, which literally means reviews in Chinese, was actually like a genuine innovator. I don't know if they were unique among Chinese tech companies in this era, but they were certainly special and were and are an incredible internet company. So people sort of derisively at the time would call Dianping the Yelp for China, but

• 34:09David Rosenthal?

  A, it was and is way more than Yelp, and B, Yelp was the Dianping for the US because Dianping was founded in 2003 and Yelp was founded in 2005.

• 34:20Ben Gilbert?

  Totally. It was crazy realizing that in the research. I'm like Yelp for China. This company started like when I was entering high school.

• 34:27David Rosenthal?

  Yeah. Yeah. Back when Wang Shing was still at the University of Delaware. It was when Dianping was founded. So the founder is this super, super sharp guy named Tao Zheng. And Tao was, uh, so he was on, uh, the evolving for the next billion, then called 996 GTV podcast and, and talked about his journey. Great episode. We'll link to it in the show notes. So he had been a consultant in the US and then a technology consultant. And then went to Wharton and did his MBA at Wharton. And he had been planning, he graduated in 2003.

• 35:05David Rosenthal?

  And he had been planning, kind of like all the, you know, future internet billionaires at the time, that he was going to go back to China after doing his MBA at Wharton. And he would pick a US tech business model to clone and, you know, raise money and run that playbook then. But unlike Shing, who, um, you know, is very confident in his abilities, shall we say, Tao was, um, he kind of looked around at the landscape in 2003 and he was like, I don't know. All the good ideas have already been cloned already. Like, I don't know why I would be able to do something better that's already being done in the US. But I do kind of want to start a company. You know, I've had all this great experience in the US and, you know, one thing that I really liked doing while being an MBA student in Philadelphia,

• 35:49David Rosenthal?

  not far from the University of Delaware, was I would use the Zagat guide when I would go out and, you know, go to restaurants in, in Philly. I wonder if there's some innovation to be done there about bringing, basically bringing Zagat online. And, you know, the thing is in China, restaurants are kind of different and there is nothing like the Zagat guide in print or online. And it actually would be way more useful because in China, you can order pretty much anything at any restaurant. Like you really, really want to know what the good stuff is at each restaurant. Otherwise you might order, they might have four or five fantastic dishes that they do better than anywhere else. But when you get the menu, it's literally a.

• 36:35David Rosenthal?

  Chinese menu, like it's like a book, you could order anything you want. You don't really know. I need kind of a guide to all these restaurants. He's, okay, well, maybe this could be useful. I'll code it up. So he moves back to China after graduating and he moves to Shanghai, which was not a tech hub at the time. And he codes, builds the website himself.

• 36:55Ben Gilbert?

  Wow, I didn't realize he was a like technical founder.

• 36:58David Rosenthal?

  Yeah, I believe he had done technology consulting before Wharton. The story is he built it himself. So like super small scale, small ambition. Like he wants to build a company, but he's not thinking like Wang Xin here. It takes off like wildfire.

• 37:10Ben Gilbert?

  And in contrast to the Groupon business model, online reviews for restaurants, and in particular for dishes within restaurants, is actually an amazing internet native business because of the asset that you build.

• 37:24David Rosenthal?

  Yep.

• 37:25Ben Gilbert?

  It has an unbelievable moat around it. If you really hit the critical mass of not just restaurants, but then the dishes at each place that are good. Like who can compete with you once you know every restaurant and every dish? Especially when those restaurants have a Chinese menu with a zillion options on them. Like this is a pure sort of internet native data play.

• 37:43David Rosenthal?

  Yeah, so he does, you know, end up hiring and building a company around this, which we'll get into in a sec, but they come up with a bunch of key innovations. So Yelp hasn't even been started yet and they have, so it's ratings and kind of a guide to restaurants. But like you said, Ben, it's not just the restaurants. It's the dishes at each restaurant that you can individually rate. You can also rate and see category ratings for each restaurant, like the food, the decor, the service, you know? You want to know like, you know, you go on Yelp, the thing that sucks about Yelp is like, this is a four star restaurant. Every restaurant is a four star restaurant. Why is it four stars? Is it that like the food is really good, but the service sucks?

• 38:22Ben Gilbert?

  Yeah, and they've tried to get into this, but yeah, I think it's safe to say Yelp has just not executed well as a public company. In the last five to 10 years, it's just been. Disappointing.

• 38:33David Rosenthal?

  Totally. Very disappointing. Then there's stuff like, you know, on Yelp, you see the dollar signs, even on all US review platforms. It's like, oh, this is a $3 out of $4 sign restaurant. Well, what does that mean? Like, you know, so on Dianping, you see the actual average price of checks, of bills at restaurants. So you can be like, oh, yeah, I know exactly what this price is. It leads to much, much, much better discovery. They focus on photos and even short video, like way before Yelp or Google Maps or anybody realized that was important.

• 39:06Ben Gilbert?

  Yeah, I was reading that Dianping is in some ways a reviews hub like Yelp, but in other ways, it's a content business, that they're actually good at sort of building a massive trove of curated content and presenting that in a thoughtful, beautiful way to the user.

• 39:21David Rosenthal?

  Yep. Yep. I mean, this whole idea, you know, the Instagramming of food, it didn't start with Instagram. I mean, Dianping in no ways is Instagram, but like, that's kind of where it started. Like, oh, I'm going to take a really nice picture of this meal that I'm about to eat at a restaurant and I'm going to put it in my review on Dianping. They also go much deeper into the value chain. This, I think, was one of the things that Yelp whiffed on more than anything else was on Dianping, you see the reviews, but you can also book a reservation at a restaurant. You can order ahead what you want to eat at the restaurant. You can get discounts at the restaurant and they do go in a small way into delivery from the restaurant. Never made any sense to me why all those are separate businesses in the US.

• 40:06David Rosenthal?

  You got Yelp, you got OpenTable, you got Grubhub. All the elements were there, but it was such a bad experience for the consumer to do that across three separate apps. So Dianping takes off, spreads like wildfire in Shanghai and then bleeds out to other kind of tier one coastal elite cities. Like we said, it becomes one of Sequoia China's very first investments. They raised $1.5 million from Neil Shen in 2006.

• 40:32Ben Gilbert?

  Do you know what Sequoia China's first fund size was?

• 40:35David Rosenthal?

  I don't know. I can't remember if Doug said on our episode.

• 40:40Ben Gilbert?

  My sense is it, it was still a large fund. This million and a half dollar check I do not think was like a big bet for them.

• 40:46David Rosenthal?

  No, no, no. But this was not a capital intensive business. And then, do you know who leads their Series B?

• 40:53Ben Gilbert?

  Is it Google?

• 40:54David Rosenthal?

  It is Google.

• 40:56Ben Gilbert?

  Yes.

• 40:57David Rosenthal?

  Tech giant, strategic investor in China, not Baidu, not Alibaba, not Tencent, it's Google.

• 41:04Ben Gilbert?

  And Google, who can't do business in China at this point. So at least I don't think they were.

• 41:08David Rosenthal?

  I think this was right before they got kicked out of China.

• 41:12Ben Gilbert?

  So how did this happen? Cause I remember seeing this and I sort of just like accepted it at face value. Cause like, yeah, Google GV or Google Capital or Capital G has been investors in all these companies. But like, right, this was what 2005, six, somewhere in there?

• 41:28David Rosenthal?

  Seven, early 2007.

• 41:29Ben Gilbert?

  What was going on?

• 41:30David Rosenthal?

  I don't know. I don't know exactly how it came to be, other than, you know, the nature and dynamics of the Tianping business was very much like Google. Like they sold advertising, much in the same way that Google sells advertising. It was an educational, high-touch, very high margin experience. You know, they didn't have feet on the street at local stores. All the assets, you know, it was, it was an internet business. It was great.

• 41:54Ben Gilbert?

  Hmm. And was Google investing in other Chinese companies at this point?

• 41:57David Rosenthal?

  Not that I know of. I don't know how the relationship came about. Maybe perhaps through Sequoia, because of course Sequoia was, along with Kleiner, were one of the two VCs in Google and on the board. And perhaps that's how it came about. So Tianping goes along, it's doing great, building a wonderful, high-margin internet business. And then 2011 hits and the thousand Groupon war era. And so then all of a sudden, you know, they've had the food and restaurant market in China, at least in tier one cities, the internet food and restaurant market completely to themselves with this wonderful business. That market didn't even exist in tier two and tier three cities.

• 42:37David Rosenthal?

  And now you've got 5,000 competitors, including this crazy Wang Xin guy, backed by Alibaba, also backed by Sequoia, going around with these foot soldiers. That's literally what they call them. They're like armies going into these restaurants and being like, hey, sign up for these groupans.

• 42:55Ben Gilbert?

  So crazy. Such a terrible, terrible business model.

• 42:58David Rosenthal?

  Terrible business model. So Tianping's trying to like, gosh, what are we gonna do? How are we gonna compete with this? They know, they realize that this is a completely different company, completely different DNA, much worse business to get into. Not to mention, they're not even in the tier two and tier three cities. But they kind of decide like, well, crap, we gotta play the game on the field.

• 43:25Ben Gilbert?

  Right. Is this the wave? Is this the technology shift? And interestingly, it wasn't a technology shift. It was like a societal behavior shift. The technology shift was to mobile at this point, which is crazy to think about for the first six, seven years of Dianping. Six years, people were just using it on PCs.

• 43:41David Rosenthal?

  Totally.

• 43:41Ben Gilbert?

  And mobile wasn't really a thing yet, or at least not in the smartphone way that we know it today. But yeah, what they chose to sort of react to was, ooh, there's this big business model transformation going on that we need to be a part of.

• 43:53David Rosenthal?

  And other companies are going to steal our customers. And, and I think the, the really strategic insight that they have, which, cause they do, despite having much less capitalization and a different business model. It's them and Meituan at the end of it that are left standing. The strategic insight they have is that because we have this other, you know, for lack of a better term, Yelp-like business. Our Dianping business, because that's what it is. Yelp is the Dianping-like business, the inferior clone. We have more, A, touchpoints with consumers. So we can, in theory, acquire consumers better. They're coming in through multiple front doors. We'll have to go spend and subsidize to get them in through the front door for our Groupon product.

• 44:38David Rosenthal?

  You know, for new customers in new cities, but for our existing customers that are already using us, you know, we've got the free real estate right in front of us. Every time they want to go out to eat, they're going on Dianping. It's like, okay, great. They've got an advantage there. They also have a, in the medium to long-term capital advantage in that the Dianping business is a great cash flow dynamic. You know, high margin business, which can be used to fund.

• 45:07Ben Gilbert?

  In a non-dilutive way, whereas everyone else is just taking on as much capital as they possibly can to compete with us.

• 45:12David Rosenthal?

  Exactly. And then finally, at this point, I don't know how much this was the case. Certainly it is the case today. They have this huge data asset, right? Like they know what consumers like, because literally the customers tell them. And then if you've been a Dianping user for a long time, they know which restaurants, which karaoke bars, which massage parlor, which, you know, experiences you like. And then for new users, you can do collaborative filtering and AI and whatnot and like predict pretty well what people are going to like. That's a huge advantage in this business.

• 45:45Ben Gilbert?

  Yeah, if you can structure data that was previously unstructured, there are so much more interesting things you can do with it, like understand what people's preferences are in order to target them with different offers.

• 45:56David Rosenthal?

  Yep, yep, yep. So by the end of the thousand Groupon war, it's Meituan, it's Yanping left, but they're kind of sitting there looking at each other. You know, both of them, obviously very smart in their own ways. And they're like, huh, this whole group buying business, you know, we've won, we've gotten to scale, our revenue numbers are much bigger than they used to be. But like, we're not getting any technology leverage out of this business. I mean, literally, it is a discounts business. We add another $100 million in revenue. Very little of that is flowing to our bottom line and our cost structure margins are not improving. We need every new restaurant we sign up, we need more people in our sales army.

• 46:40David Rosenthal?

  Every new customer, literally the whole business is we're subsidizing customer experiences. Tao actually says publicly at this point that he predicts, even at the end of this, that he predicts the entire group buying space is just going to die, that there's no future in it. And Groupon had gone public, oh my gosh, doing this research just brought back so many memories. Remember when Groupon went public? And that was like literally the high watermark, they never traded above their IPO price.

• 47:07Ben Gilbert?

  I remember when they fired the CEO and they, when Andrew Mason, you know, left to go spend more time with his family, just kidding, the board fired me. That moment sticks in time for me as a pivotal moment in tech history.

• 47:17David Rosenthal?

  Such a character and so like not his fault too, like it was just a bad business. So their market cap was down 90% from IPO price within like eight to 10 months.

• 47:32Ben Gilbert?

  Wow.

• 47:33David Rosenthal?

  And so that's the moment that we're sitting in here. And this is now late 2012. And there is this interesting thing going on. I had thought before doing the research that the whole food delivery online to offline, you know, sort of is, which is the Chinese sort of version of talking about this originated in China and that it was DoorDash and Uber Eats and Postmates that sort of copied it here in the US. It basically emerged at the same time in both places. So, right around the same time as Tony and Stanley and Andy and crew and Evan at Stanford were starting

• 48:15David Rosenthal?

  to think about food delivery and DoorDash was the same time that Meituan and Dianping are kind of looking around and be like, hmm.

• 48:22Ben Gilbert?

  We have all these restaurant customers. We have all these people who visit our properties who are consumers. Is there something better we can do here?

• 48:29David Rosenthal?

  Is there something better we can do here? And Didi, of course, existed at this point in China and Uber in the US. And so you have this whole new, you know, the, it's like burned in my memory of like the great why now of DoorDash of like, hey, it's about the labor supply that has mobile phones that we can now bring on these gig economy laborers and direct them and coordinate them in a way that was completely impossible before. Well, this is existing in China too now with ride sharing and Didi. So, they both go hard into basically converting this failed group buying business into a food delivery business.

• 49:14Ben Gilbert?

  And so did Dianping still have sort of a successful Yelp-like business going on at this point?

• 49:20David Rosenthal?

  That has continued from 2003 all the way through 2021 and the future. And it's arguably one of, if not the most important linchpin of the whole combined company.

• 49:32Ben Gilbert?

  Yeah. It's fascinating because as you just repainted there, you know, it was Tony and company at DoorDash thinking about this. If you rewind further back, of course, you have Grubhub and Seamless and I think Just Eat in the UK exists already at this point.

• 49:47David Rosenthal?

  And there was a player in China that we'll get to in a minute.

• 49:50Ben Gilbert?

  Oh, interesting. But of course, they didn't actually have the delivery fleet themselves. They were just the you can order with us and then it'll be on the restaurant to take care of whatever they want to do. It's also worth noting, you know, in the US, how quickly we forget that Uber Eats totally stole DoorDash's business model. DoorDash came up with something. Uber Eats was doing something completely different. And then they were like, oh, no, shoot that. And that's actually even better for us, given the fact that we already have all these drivers. So all this to say, I think you are totally right to say the discovery sort of happened simultaneously with DoorDash and Meituan and Dianping. But it totally is worth noting that like, food delivery wasn't new. It was organizing food delivery in this way that was new.

• 50:28David Rosenthal?

  And you hit on one really important thing, and then another one that is a totally the same dynamic with these companies. Well, the one that's most the same is, you know, Tony and team's core insight with DoorDash, one of their core insights was suburbs. Like, hey, you might think that this food delivery would only work in a dense city like New York City, like Alfred was talking about on the special episode we did with them. But no, actually, there's huge, there's even more demand for this product in suburbs where they're not great food options. And logistically, it's easier, too, because you can park and you can move around easier as a courier and whatnot.

• 51:08Ben Gilbert?

  So wait, was that the case also in China?

• 51:10David Rosenthal?

  It was. So of course, food delivery works great in the tier one dense cities. But remember, because of this group buying craze, Meituan and then Dianping had expanded out to hundreds of cities across all of China. And similarly, you know, if you live in Shanghai or Beijing or the like, well, nowadays, you use Meituan and it's great for food delivery. But even before that, you could get anything you wanted, anytime you wanted, with minimal effort. If you live in a tier two or tier three city, and you're just getting a mobile phone for the first time, you are not having that experience.

• 51:45Ben Gilbert?

  You don't even have e-commerce because Alibaba doesn't serve you. Pinduoduo doesn't exist yet.

• 51:50David Rosenthal?

  Yep. Exactly, exactly. So it's not quite suburbs versus urban versus cities in China. It's more tier one versus lower tier cities. But the other dynamic, the drivers. So unlike, you know, DoorDash had to build up their driver, their courier staff from scratch. Both Meituan and Dianping, but especially Meituan, they just recruited this massive army of foot soldiers to go do door-to-door Groupon sales to merchants. It's not that hard to give those folks a cheap Android phone and a scooter and convert them into couriers.

• 52:28Ben Gilbert?

  Huh, smart.

• 52:29David Rosenthal?

  And not only that, but they had the whole management organization structure built out as well around that.

• 52:35Ben Gilbert?

  So wait, were they employees? Is there the same sort of like concern over the delineation in China that there is in the US?

• 52:42David Rosenthal?

  That's a good question. I don't know. I think it is different, but it doesn't seem to be as much of a big deal.

• 52:49Ben Gilbert?

  The US, it was like, the biggest issue was, well, yeah, sure, mobile's here, but they also can't be full-time employees because that won't work into our cost structure. They have to be only paid for the time that, you know, the phone tells them, okay, now in order. And in China, I do wonder, maybe we should do a, this feels like a good sort of LP topic to dive into worker classification in China and understand that better.

• 53:13David Rosenthal?

  Yeah, I have no idea. That would be fascinating to understand better. So in May of 2014, Meituan goes out, Wang Xin goes out and raises $300 million from Alibaba, Sequoia, his existing investors, and General Atlantic, new investor, and rolls out this food delivery thing from the get-go at 100 cities across China.

• 53:36Ben Gilbert?

  So let's review investors here real quick. So Meituan has Sequoia China. They have Alibaba, and they got Alibaba to double down in a big way. And then they got General Atlantic.

• 53:47David Rosenthal?

  Yep. And Dianping has still, at this point, fairly little capital because they've been living off the cash flow from the Dianping product.

• 53:57Ben Gilbert?

  And they've been around 10 years.

• 53:58David Rosenthal?

  They've been around 10 years from also Sequoia China and Google. But Google's tapped out at this point. They're not going to invest anymore in China.

• 54:08Ben Gilbert?

  But not Tencent or Alibaba or Baidu. Like, they're uninvolved at this point.

• 54:14David Rosenthal?

  To this point. So Tencent, being the brilliant folks they are and seeing everything going on in the country through their ownership and operation of WeChat, which we'll talk about more in a minute, they see this dynamic too, and they approach Dianping and they invest an undisclosed amount in Dianping, but must have been a very large amount of capital into the company in early 2014. So right around the same time. So now we got Tencent backing Dianping. And of course Tencent and Alibaba are brutal rivals and Baidu too, but you know, poor Baidu, we'll get to them in a minute. So they dump all this money into Dianping, but Tao and Dianping, you know, they know,

• 54:59David Rosenthal?

  they see they're building up their own food delivery operations, but they're not moving as fast as Meituan and Wangsheng. They still have the internet company DNA, not the, you know, Wangsheng DNA. So at Tencent's urging, Dianping goes out and leads a $80 million strategic investment in another company in the space. In fact, in the OG company in the food delivery space in China, a company called Ulama, which I think I'm saying that right. It is spelled E L E dot M E. And this is going to become a very important player

• 55:44David Rosenthal?

  in the story, but I think it's pronounced Ulama. And what they do is basically create what Meituan is today. So they integrate the Ulama delivery courier network into the Dianping experience. So you're in the Dianping app and you know, you're looking at reviews, you're choosing where to go to eat, and you've got right there integrated food delivery from these restaurants that you can, you know, see what dishes are great. You might experience when you're going out to eat, you'll see the calls to action in the app to go do Ulama food delivery next time instead of going to eat. It's a pretty powerful combination.

• 56:29Ben Gilbert?

  So wait, who led the investment in Ulama?

• 56:31David Rosenthal?

  Dianping did. So they're still a private company.

• 56:34Ben Gilbert?

  So Dianping raised money from Tencent.

• 56:40Ben Gilbert?

  And they had to obviously like cash flows that generated big profit on their balance sheet and they invested some 80 million of that into Ulama.

• 56:48David Rosenthal?

  So now it's unclear how much that was. I think it was probably a joint and knowing a little bit about Tencent, they operate very collaboratively, like a joint, hey, you know, Tencent probably thought this was a good idea. Tal and Jiang Ping were like, yeah, this is a good idea. This will be a great way to learn. We can partner, you know, maybe this leads to an acquisition. We'll also be building this up on our own, et cetera.

• 57:09Ben Gilbert?

  Okay. So we're like totally in Tencent, Jiang Ping land here.

• 57:12David Rosenthal?

  Yeah. While Alibaba is doubling down on Meituan. So we're setting this up that this is going to be, uh, it's like a two-on-one fight of Jiang Ping and Ulama together, united against Meituan.

• 57:26Ben Gilbert?

  Clever.

• 57:26David Rosenthal?

  Very clever. So Ulama, a little bit of brief history on, on them. They're actually kind of like the real DoorDash story of China. So it was started in a college dorm room by college students in Shanghai in 2008. So like way back.

• 57:44Ben Gilbert?

  And so that's what, two, two and a half years or so before Meituan is founded?

• 57:48David Rosenthal?

  Yeah. So before the whole group buying craze, like it was, they were way too early to this space. And the story is that they were like big PC gamers in college, the founders, and they didn't want to leave their dorm rooms to go get food. And, you know, so they started a food delivery business, just like Tony back at Stanford. They're running around campus, delivering food themselves. The CEO, Mark Jiang, he actually goes to work as a delivery courier for restaurants that do it themselves, just like Tony went and worked for like FedEx and stuff.

• 58:19Ben Gilbert?

  I think there's so many of these China stories that are like, I feel like I'm listening to an old version, like an old episode that we did.

• 58:26David Rosenthal?

  I know, I know.

• 58:27Ben Gilbert?

  Going through them.

• 58:28David Rosenthal?

  So they bootstrap for a couple of years. Again, they're too early to the space. They raise a little bit of money from GSR and then from Matrix China in early 2013. That was a very prescient investment, kind of right at the right time. And then later in 2013, once it starts becoming clear that, hey, group buying kind of sucks, this online to offline food delivery thing is the next wave, Ulama raises a big new round, a series C, from a new financial investor who has a very well honed and educated point of view, shall we say, on the space. Who do you think that investor is Ben?

• 59:06Ben Gilbert?

  Is this before the Tencent Dianping round or after?

• 59:10David Rosenthal?

  Before.

• 59:11Ben Gilbert?

  Before, okay.

• 59:12David Rosenthal?

  Not Tencent, not Alibaba, financial investor.

• 59:14Ben Gilbert?

  So that 80 that came in from them was after this. So this is the round immediately proceeding.

• 59:19David Rosenthal?

  Yep.

• 59:20Ben Gilbert?

  Pure financial investor.

• 59:22David Rosenthal?

  They really see where this space is going.

• 59:25Ben Gilbert?

  Let's see, they see where the space is going. So someone else in food delivery.

• 59:33Ben Gilbert?

  Who bet big on, I don't know.

• 59:35David Rosenthal?

  Sequoia China.

• 59:37David Rosenthal?

  How gangster is that? So Sequoia, they are in Meituan, they are in Dianping.

• 59:43Ben Gilbert?

  They got eyes everywhere.

• 59:44David Rosenthal?

  They are in Ulama.

• 59:45Ben Gilbert?

  Neil Shen, you dog.

• 59:47David Rosenthal?

  Oh my gosh.

• 59:48Ben Gilbert?

  That's crazy.

• 59:49David Rosenthal?

  Legend.

• 59:50Ben Gilbert?

  I thought, I was like, oh, that's too easy. It's going to be like a Naspers or like a Fidelity or like.

• 59:55David Rosenthal?

  This is just another one of those, like, the China ecosystem is so different. That could never happen in the US. Could you imagine?

• 1:00:03Ben Gilbert?

  Being an Uber and Lyft.

• 1:00:04David Rosenthal?

  Yeah, and Postmates and DoorDash, like.

• 1:00:08Ben Gilbert?

  Right, right. That's crazy.

• 1:00:11David Rosenthal?

  Totally crazy. So quickly after that, then the Dianping slash Tencent 80 million dollar round happens in Ulama. And then shortly after that, Tencent is like, oh yeah, this thing is working. We'll back up the truck. How about another 350 million dollars from us?

• 1:00:30David Rosenthal?

  So this is where things get nuts. And at this point, Dianping, I believe, is still running their own food delivery operations in some cities. But like, the strategic weight is behind Ulama at this point.

• 1:00:42Ben Gilbert?

  We should say to listeners, we're speaking in dollars here because that's the best way that David and I can compare apples to apples to everything going on in the US. And of course, previous episodes too. But of course, this is all actually happening in RMB.

• 1:00:54David Rosenthal?

  Yes, yes, of course. So this is where things just go like completely off the rails. So Meituan couriers and Ulama slash Dianping couriers literally start fighting in the streets. Like, there's blood in the streets. So there are viral videos that start going around in China. The government gets involved. They have to like broker peace here. Like videos of like gangs. Getting into brawls on the streets and like turf wars over restaurants and delivery routes.

• 1:01:25Ben Gilbert?

  What incentives do they possibly have? It's not like they have huge upside in the company. Like, why are you fighting for your tribe?

• 1:01:31David Rosenthal?

  I think the culture, you know, I mentioned a little bit ago that like the management structure and culture from the group buying days, it's a very militaristic culture. So if you go on Meituan's website now and go on their English Language Investor Relations, they have a video, an amazing video, kind of showing the operations of the company and the super app and everything you can do with it. But when they show the courier network, it's like military style, like lines and rows of couriers with like a commander out in front, giving the orders.

• 1:02:03Ben Gilbert?

  Crazy.

• 1:02:04David Rosenthal?

  It's interesting. It's not quite like the independent gig laborers in the US.

• 1:02:10Ben Gilbert?

  No, so it doesn't sound like it. So it feels to me like they're employees and they found some way to make that work.

• 1:02:15David Rosenthal?

  Yeah. So throughout 2014, 2015, the two camps are sort of neck and neck. By the way, also, we should have said, this market is exploding. So the food delivery market in China is about four times bigger than the food delivery market in North America, and it is growing at a 30% annual CAGR, the whole market. So both of these two camps are kind of neck and neck in 1415. They each have about 30% market share. And then in August 2015, Ulama raises another $630 million.

• 1:02:57David Rosenthal?

  Meituan had raised in January of that year, another $700 million. So like huge, huge, huge amounts of capital pouring in.

• 1:03:05Ben Gilbert?

  Yeah.

• 1:03:06David Rosenthal?

  And that Ulama raise comes in August of 2015. And that's right before the shoe drops on October 8th, 2015. The announcement of the center, I mean, I remember reading about this when it happened here in the US and thinking like, oh, wow, that's interesting. But now knowing all the context behind this. Meituan and Dianping announced that they're merging. So you've got these two rivals, but it's almost like a proxy war with Dianping and Meituan.

• 1:03:41Ben Gilbert?

  And you say proxy war because it's between Tencent and Alibaba.

• 1:03:44David Rosenthal?

  Well, it's between Tencent and Alibaba, but it's also between Meituan and on the streets, literally on the streets, it's between Meituan and Ulama. And then in terms of capital, it's between Tencent and Alibaba with Sequoia also on both sides. Sequoia on all three sides here.

• 1:03:59Ben Gilbert?

  David, I need a diagram.

• 1:04:00David Rosenthal?

  I know, I know. Oh my gosh. Uh, wars in China. And then Meituan and Dianping are merging. So poor Ulama, their whole strategic advantage was the product integration with Dianping. And they just raised their new investors, they just raised $630 million of capital. Two months later, their main strategic partner, their product advantage not only goes away, goes away to their direct competitor.

• 1:04:31Ben Gilbert?

  Oof.

• 1:04:32David Rosenthal?

  Brutal.

• 1:04:33Ben Gilbert?

  Wow. So without spoiling it for the audience, I only know of Ulama because of how they come into play later in this story and knowing all of this history about them, that they were actually a Tencent investment, that they were actually a Dianping investment and partner is going to be astonishing, given where they end up in this war.

• 1:04:52David Rosenthal?

  What's about to happen. So supposedly, once the Meituan and Dianping merger happens, Tencent and Sequoia supposedly go to Ulama and say, because remember they're investors in Ulama and they're like, hey, look, writing's on the wall here. I think what makes sense is why don't you sell your assets to this new, you know, combined company? Clearly they're going to be the winner here. Like, let's all just consolidate. You'll get some small piece of this. We'll all be happy. And of course Tencent and Sequoia are going to be very happy if this happens.

• 1:05:29Ben Gilbert?

  Right. Cause now they're the largest shareholders in what is a company that just has room to run, that no longer is.

• 1:05:35David Rosenthal?

  Just going to be a monopoly at this point.

• 1:05:37Ben Gilbert?

  Competing. Yeah.

• 1:05:38David Rosenthal?

  Yeah. So to his eternal credit, Mark, the CEO of Ulama is like, screw you guys. No way am I going to do that. And fortunately he has one strategic option left on the table.

• 1:05:53Ben Gilbert?

  Is it the party who just sold their entire stake in Meituan?

• 1:05:58David Rosenthal?

  Indeed, it is. It's Alibaba.

• 1:06:01Ben Gilbert?

  So walk us through this. For folks listening, one thing that happened as a result of this Alibaba backed Meituan and Tencent backed Dianping merging is that in a part of that merger where I think Meituan was slightly the larger shareholder and it was kind of a merger of equals, but Meituan won out a little bit. Alibaba decides now's the time to get out. And not only did they say now's the time to get out, they back the like scrappy, smaller party who we all thought was kind of screwed in this whole thing.

• 1:06:35David Rosenthal?

  Not necessarily smaller, but definitely they were at a strategic mega disadvantage.

• 1:06:40Ben Gilbert?

  Now, yeah. How does Alibaba decide to sell their stake in the combined Meituan Dianping?

• 1:06:45David Rosenthal?

  So I think, this is my interpretation here. I think what happened is Alibaba must have been so pissed at this because remember Alibaba is like, you know, they're like the grossly put like the Amazon, you know, in China, like e-commerce is their thing. Taobao, Tmall, like that is their home turf and financial services around that. Whereas Tencent, you know, despite Renren.

• 1:07:11Ben Gilbert?

  Games, social networks.

• 1:07:12David Rosenthal?

  Social networking, you know, while they're bitter rivals, they can kind of coexist, you know, in separate spheres here. But now you've got this hyper strategic new market developing where they each have these investments, but it's encroaching much more on Alibaba's space than it is on Tencent's space. Like Tencent getting into local commerce, food delivery is just purely additive to them. That's offense. Whereas for Alibaba, this is defense, like, because it's not a big leap to think, oh, I could deliver food. Well, I could deliver like e-commerce stuff too.

• 1:07:49Ben Gilbert?

  Totally. It's like, if you're an e-commerce player, this emerging world of online to offline, or as people sort of refer to it, the, the sort of Amazon of services, this locals, it's kind of sort of like the Amazon Prime. That is going to encroach someday on Amazon because if you think about the US, like right now, we have a difference between Amazon and Amazon Prime. At some point, everything will just be two hours. And so you have to imagine that if you're Alibaba, you're like, whoa, this fleet of people delivering stuff super fast in every city in China, that is where we need to be at some point.

• 1:08:21David Rosenthal?

  Yeah. And now all of a sudden Tencent, like we can't hold on. We can't stay involved in Meituan Dianping because Tencent, our bitter enemy, is now right here alongside us as fellow 20% shareholder in this company, learning everything and just getting all this upside while we're, you know, this is like strategically very threatening to us.

• 1:08:43Ben Gilbert?

  And so why wouldn't you try and box Tencent out? Like my sense here is like, look, Alibaba bet right on the larger surviving company of the two. I mean, of the two, it was Dianping that merged into Meituan. And so if I'm Alibaba, I'm like, get the hell out of here, Tencent.

• 1:09:02David Rosenthal?

  Yeah. Well, and what was Sequoia's role in all this?

• 1:09:06Ben Gilbert?

  Totally.

• 1:09:06David Rosenthal?

  We'll never know, but.

• 1:09:07Ben Gilbert?

  Right. There's a lot that's super untold here.

• 1:09:10David Rosenthal?

  Totally. I completely agree. I would love to have been a fly on the wall for those conversations.

• 1:09:16Ben Gilbert?

  Someone, I mean, the dollar sign got to the place where Alibaba was down to sell their stake.

• 1:09:21David Rosenthal?

  Yep.

• 1:09:21Ben Gilbert?

  That having, that just had to be what happened.

• 1:09:23David Rosenthal?

  Yeah. So Alibaba sells their entire stake in Meituan Dianping for $900 million. And Mark from Ulama turns around and, you know, enemy of my enemy is now my friend. Alibaba invests one and a quarter billion dollars into Ulama for a 25% stake right off the bat. And then they don't stop. In 2017, they put another billion dollars into Ulama. So Baidu had a, poor Baidu, did have the number three player in the space. They had homegrown, built up a food delivery business and had like, yeah, like 15% ish market share, 15, 20% market share.

• 1:10:06David Rosenthal?

  So less than Ulama and Meituan Dianping, but they bought it, consolidated that into Ulama.

• 1:10:13David Rosenthal?

  And then in April 2018 Alibaba buys the rest of the company, does a wholesale acquisition of Ulama for $9.5 billion, which was until that point, and I think may still be the largest dollar-sized China tech acquisition in history.

• 1:10:35Ben Gilbert?

  Wow. Crazy. All in this sort of same market.

• 1:10:39David Rosenthal?

  Yep.

• 1:10:39Ben Gilbert?

  Like, we haven't even gotten all the crazy stuff that Meituan does these days, but this is purely the like food delivery and restaurant recommendations and reviews and, you know, kind of deadish Groupon corner of the business.

• 1:10:53David Rosenthal?

  Yep. And at this point Alibaba's pumped more than $10 billion into this business.

• 1:11:01Ben Gilbert?

  Cause they bought Ulama outright for 9. something billion?

• 1:11:04David Rosenthal?

  Outright for 9.5 and they had invested.

• 1:11:07Ben Gilbert?

  A billion five.

• 1:11:08David Rosenthal?

  Yeah, billion five plus the money they had invested into into Meituan back in the day. Plus they had their own internal operations that they were spinning up to.

• 1:11:18Ben Gilbert?

  Yeah.

• 1:11:18David Rosenthal?

  It's insane.

• 1:11:19Ben Gilbert?

  I want to talk for a minute about the attractiveness of the opportunity to be the winner in this space. And there's two quotes that I want to bring up from Tao Zheng that he had on the great Next Billion podcast by GGV Capital. The first one is, if you have three or even two players in a market like this, nobody's going to make any money. The second one is even more damning, which is, in this kind of business, the only rational way is to merge unless you think you can kill the other guy. And he had sort of described that Dianping had been talking with Meituan about merging for two years. You can sort of understand why when you flash forward to today and look at how freaking profitable the combined company has gotten. But at this time, no one's making any money. It's just

• 1:12:03Ben Gilbert?

  a knife fight of investors pouring money in, much like DoorDash and Uber Eats, fighting for market share, subsidizing customers. It is a complete race to the bottom.

• 1:12:14David Rosenthal?

  Yeah. And what's so wild about these betrayals, double crosses, triple crosses, and the end state of Alibaba and Tencent being on separate sides here is like, there is never going to be a merger, another merger between Meituan, Dianping, and Ulama. Like, it is now a fight to the death. Unfortunately for Alibaba. And I think, I mean, there's a lot of stuff going on around commerce in China and Alibaba with Pinduoduo and JD and everything we've talked about in previous episodes. But Alibaba share price has not done well over the past couple of years, especially in comparison to Tencent and others and Meituan and Pinduoduo. This is a big reason. They are losing big time in this space to Meituan.

• 1:12:59David Rosenthal?

  So 2016, when Ulama bought Baidu's business, they then became larger than Meituan Dianping. So they had the upper hand. 2017, though, they lose, Meituan grows hugely. The combined company, Ulama and Alibaba, lose majority market share. And then by 2018, so we're like two years in here. Meituan now has 60% market share. Ulama's down to 38%. And then by 2019, Meituan's just further pulling ahead. They have 67% market share. Ulama's down to 30%.

• 1:13:38Ben Gilbert?

  So this is Meituan Dianping with that line of unless you think you can kill the other guy, which they're doing.

• 1:13:45David Rosenthal?

  Which they're doing.

• 1:13:46Ben Gilbert?

  Killing Ulama.

• 1:13:47David Rosenthal?

  Yeah, yeah. So we've talked about this a little bit already, but why are they doing it? It's the Dianping part of the business that's so strategic. Like, consumers have this reason to come to the app and engage with it much more deeply than you would if you're just ordering food delivery. So this is where, you know, the whole super app side of the thing really comes in.

• 1:14:10Ben Gilbert?

  I mean, if you think about it, it makes so much sense. Like, the amount of time that I waste flipping back and forth between I look at stuff on DoorDash. I'm like, oh, that looks good. Can't really trust the reviews. So I flip over to Yelp, which is my, like, source of truth for reviews. I'm like, how many stars they have on Yelp?

• 1:14:27David Rosenthal?

  And you can't really trust those either, but.

• 1:14:28Ben Gilbert?

  Totally. And they're like, I'm like, oh, three and a half stars, so zero stars. Okay, skip. But like, I am bouncing back and forth between the two. It makes so much sense for that to be one platform.

• 1:14:37David Rosenthal?

  Totally. It's such a horrible product experience. Like, same deal. I'm sure everybody has this. Like, yeah, I want to order something. But I want to try something new that's not in my usual list of restaurants. I have no frigging clue. You know, I look on DoorDash, I look on Yelp, I can't figure it out.

• 1:14:55Ben Gilbert?

  Right. And DoorDash and Uber Eats have every incentive to push me to click buy because they participate in the transaction. Yelp's incentives are actually the pure one here because they're just an advertising based business. They don't care if I actually dine at that restaurant. They're more neutral in this party. So I, you know, you can sort of trust their reviews more. That's why I always feel like I'm looking at these reviews and, and, you know, Uber Eats and DoorDash. And I'm like, ah, I don't know.

• 1:15:20David Rosenthal?

  Yep, totally. And based on, you know, I've talked to people in the past at both of those companies. And I'm like, guys, I need reviews. Why don't you give me reviews? Just give me reviews in the product. And they're like, well, it's complicated because, you know, the restaurants are our partners and like, we want to like, yeah.

• 1:15:37Ben Gilbert?

  Yeah. I'm curious how Baitwan gets around it or how Baitwan has sort of dealt with that.

• 1:15:41David Rosenthal?

  Well, I think it's because the Dianping assets, you know, there's millions of reviews in the system and very detailed, granular, down to the dish level that are just already built in, in there. They're there. It's not like, you know, they're creating new ones, but it already exists. So Wangxing and Baitwan, he's not satisfied with just that. He's like, I'm going to press the advantage here. I've got people coming to my app. What else can I do with them in the app to sort of increase the cross-sell opportunity? Increase my customer acquisition, front doors, increase the value I'm, customers are getting out of using my app. They get into travel. This is crazy. They get into hotels, they get into flights.

• 1:16:19Ben Gilbert?

  Do you know how they know about the travel industry?

• 1:16:21David Rosenthal?

  Well, because Neil Shen started Ctrip.

• 1:16:23Ben Gilbert?

  Ctrip, yep, exactly. Which was the dominant and primarily B2B focused, but the dominant player in Chinese travel.

• 1:16:31David Rosenthal?

  Yeah. Ctrip was the booking.com of China. Like they were, they were dominant, like all travel, hotels, flights domestically in China, you were doing on Ctrip.

• 1:16:39Ben Gilbert?

  And still huge.

• 1:16:40David Rosenthal?

  It's still huge, but they only have 20% market share now. And Baitwan has 46% market share of travel in China.

• 1:16:49Ben Gilbert?

  Unbelievable, which they launched five years ago?

• 1:16:52David Rosenthal?

  Yeah, or less.

• 1:16:54Ben Gilbert?

  It's as if like an Expedia launched four or five years ago and then boom has close to a third of the market share.

• 1:17:00David Rosenthal?

  Yep. So travel is huge for them and importantly, has a much better margin structure than food delivery. So they're getting a huge portion of the contribution margin in the company is coming from this travel business, which is getting traffic from the food delivery business and the reviews business. You can start to see the flywheel going here. They get into local services. So, you know, this is very adjacent to restaurants and to all the reviews in the platform, massages, karaoke, local events, experiences, ticketing, just book all that right on the app. They get into home services. You want your dry cleaning done. You want your laundry done. You want your house cleaned, stuff that you would use like thumbtack for in the US. Great. Bring it all in the app.

• 1:17:44Ben Gilbert?

  It's so fascinating.

• 1:17:45David Rosenthal?

  They get into transportation. They start competing with DD and then I think they partner with DD later. They get out of the ride sharing game directly. They buy MoBikes so there you can book bikes in the app. They get into groceries. So like Instacart type business. You want groceries delivered? Great. You want to shop in person in a grocery store and pick out your items? Great. Just scan them right there in the grocery store on the Meituan app and pay and walk out the store and have somebody, a courier come and bring them and deliver them to you.

• 1:18:15Ben Gilbert?

  It's so fascinating because if you would have told me before starting the research on this company, the Chinese super app, I would have been like, oh, WeChat. But WeChat, you know, is kind of like the app store launcher or like the app launcher, like it's your home screen in a way where it's like, oh, here's a bunch of different apps that integrate, you know, that I can get to from my chat experience and integrate with my chat. This one's like an app that enables you to do anything in the physical world.

• 1:18:42David Rosenthal?

  Yep. Well, it's funny you say that Ben, because both of these things are true. A lot of people use the Meituan app that you can download from whatever app store you're using on whatever phone you're on. Just as many, if not more, people use the Meituan mini-program on WeChat. So this is why Tencent is just so dominant. Like, A, they invest in the best companies on the platform because they see the uses on WeChat. They did this with Pinduoduo, they've done this with Meituan. They put their hand on the scale, you know, either in light-touch ways. But mini-programmes on WeChat is it's a full-fledged app experience right there within WeChat.

• 1:19:23David Rosenthal?

  So Tencent and the WeChat ecosystem is getting all the benefits out of this. So like Tencent is a major e-commerce player in China without having to build any of their own e-commerce themselves. And they're just like, it would be an exaggeration to say they're eating Alibaba's lunch at this point, but between Pinduoduo and Meituan, they've got these huge monster players that they're invested in and are being used through their ecosystem on WeChat and Alibaba's boxed out.

• 1:19:52Ben Gilbert?

  Yeah, it's crazy. From a capital allocator perspective, Tencent is like Berkshire Hathaway. Like, they don't care about owning these companies. They don't want to control them, as Warren said in his most recent letter to shareholders. They're indifferent to whether they control them or not. But, you know, they look at great businesses and say, we want to own some of that. So they're they're like Berkshire in that way. They're like Facebook in that they own the most dominant messaging and social network app. So they're sort of like, they're a Fang company, they're Berkshire, but they're also Sequoia.

• 1:20:29David Rosenthal?

  And they're like Apple in the App Store.

• 1:20:31Ben Gilbert?

  They're like Apple in the App Store, but they're also like Sequoia. Like, they're one of the best pure sort of financial investors who also then puts their hand on the scale to send you traffic. Like, they're a highly-trafficked destination with WeChat, and then they just decide who to open that up to. And of course, like you said, in light-touch ways. But undeniably,

• 1:20:50Ben Gilbert?

  People decide to take money from them because that opportunity is available. Oh, and by the way, they might do it to your competitor if you don't take their money.

• 1:20:58David Rosenthal?

  Right. As we've seen.

• 1:21:00Ben Gilbert?

  It's crazy.

• 1:21:01David Rosenthal?

  It's just, it's incredible. So September 2016, Meituan hits 5 million transactions a day that they're doing across all of their verticals on the platform. March 2017, so like, what's that, six months later, they hit 10 million transactions a day on the platform. By 2018, they have 600 million active users. They have over 50% market share of food delivery. They're crushing Luluma. They do over $10 billion in revenue, growing 100% year over year.

• 1:21:36Ben Gilbert?

  God, doubling at that scale.

• 1:21:38David Rosenthal?

  Unbelievable. And that's when they launched their IPO. So they go public in September 2018. And this was a big IPO, big China IPO at the time, but like so many things, I was like, oh, wow. Like, that's impressive, but at least I was, I didn't understand the extent of all of this.

• 1:21:58Ben Gilbert?

  Me neither.

• 1:21:59David Rosenthal?

  So they raise about $3 billion at a $50 billion market cap when they go public.

• 1:22:07Ben Gilbert?

  Which is up from 30 in their last round that they did.

• 1:22:09David Rosenthal?

  Yep. And then in 2019, they grow another 50%. They do $15 billion in revenue. They turn profitable. They do $1 billion in operating cash flow. They're net income positive. And then COVID hits. And this is interesting. I think unlike DoorDash where COVID was an unalloyed good for DoorDash. It's a little more complicated for Meituan. Ultimately, I think it was good. But remember their hotel business and their travel business is also a big part of the platform. So that got crushed, as you might imagine.

• 1:22:50Ben Gilbert?

  And the highest margin part of the platform.

• 1:22:52David Rosenthal?

  And the highest margin. Yeah.

• 1:22:53Ben Gilbert?

  It accounts for a smaller part of their revenue, but a big part of their profits.

• 1:22:57David Rosenthal?

  Big, big part of the profits. So Q1 2020, their total revenue is down 12% across the company. And hotel and travel is like crushed.

• 1:23:09Ben Gilbert?

  And Q1 of 2020 in China is like Q2 of 2020 in the US.

• 1:23:13David Rosenthal?

  Right. It was all, it all hit in, in December, January.

• 1:23:18Ben Gilbert?

  Yep.

• 1:23:19David Rosenthal?

  By Q2 of 2020, though, revenue is back up, total revenue up 9% year over year for the company. And people are starting to wake up, you know, around the world at this point. They're like, oh, wow. Wait, COVID is good for tech companies and good for these next generation commerce and delivery platforms. So the stock starts to go on a tear. In May of 2020, the stock goes from a $65 billion market cap at the beginning of the month. So, you know, up modestly from the IPO at the end of 2018, but, you know, flat-ish to hits 100 billion market cap by the end of May 2020.

• 1:24:04David Rosenthal?

  By October, it hits $200 billion market cap. By February of this year, just a couple of weeks ago of 2021, hits $300 billion market cap, becomes the third largest market cap tech company in China behind Tencent and Alibaba. And it's traded down a little bit since then. It's now at a $270 billion market cap as we record this. But wow, what a story.

• 1:24:34Ben Gilbert?

  Absolutely. I mean, there is a stock market story going on here. There is a pandemic story going on here. There is an execution machine story going on here. And I think the biggest one that I want to talk about in a minute is a business model and profitability story going on here.

• 1:24:53David Rosenthal?

  Yep.

• 1:24:54Ben Gilbert?

  All right, listeners, now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:25:07David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:25:24Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:25:39David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:26:03Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:26:22David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:26:52Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you. Well, David, I want to sit with some of these numbers from today and like unpack them a little bit and understand the company's position and how much it has changed in the last year. Because if we look at this, let's talk about the largest tech companies in China right now. There's Tencent, number one, the $850 billion market cap. So worth understanding

• 1:27:35Ben Gilbert?

  for those out there. China doesn't have a trillion dollar tech company, though that is a strictly US phenomenon right now. I bet it'll change soon, but that is what it is today. Alibaba hasn't seen the sort of reward that Tencent has. It's sitting there around $675 billion. Meituan, where we just talked about, between $270 and $300 billion. It's a pretty steep drop, sort of obviously between Alibaba and Meituan. So they're not yet in the league of that sort of company. But they're right there, neck and neck with Pinduoduo. It's a $200 billion company, which we've covered. ByteDance, the parent company of TikTok. And what's the other? Douyin. Douyin. Well, Douyin and Toteo. And Toteo, with $180 billion. So the list sort of turns quickly into these $100 billion

• 1:28:20Ben Gilbert?

  to $200 billion. Actually, lots of private companies. You know, ByteDance is private. You know, who would be in here, but is not publicly traded as Huawei? Yeah, right. That we've covered before. Right, of course. So you've got, you know, Pinduoduo, ByteDance, then QuaiXiao, JD, Baidu, Xiaomi, down from there. So Meituan is in sort of rare air here. And a lot of that, of course, is because of the stock run up from the last year. But the growth story in terms of profitability for this company is absolutely insane. So as David mentioned, they've been profitable since Q2, I believe it was, of 2019. But then in the last year, they grew their profits, their sort of operating profit line from $225 million a quarter to $1 billion a quarter.

• 1:29:04Ben Gilbert?

  So like, they just kind of figured out, oh, there's where the operating leverage is in our business. It's when we tack on a bunch of other businesses that we can amortize the cost of acquiring these customers over all these different revenue streams. And we can get them to, I think that now it's 27 transactions per user per year across 475 million transacting users. So you just have this situation where like- It's just bananas. Totally. Like your Airbnb, you get half a transaction a year. Your DoorDash, I can't remember what their number of transactions is per year, but whatever this is, this super app, it's DoorDash, plus it's Fandango, plus it's, I don't think ride hailing is included in here,

• 1:29:47Ben Gilbert?

  because like you said, they're, they're more of a partner in that now. But like, they just own this big basket of transactions that they've already acquired you for.

• 1:29:56David Rosenthal?

  So that's 30 transactions a year across a user, an active user base, that is roughly the size of, I'm guessing, like, the population of all of North America. I don't know what the population of Mexico is.

• 1:30:12Ben Gilbert?

  Right. Because the US is what, 360 or something? 360 million?

• 1:30:16David Rosenthal?

  I thought it was like 330 or 340, but then Canada has added another 30 million to that. I don't know what the population of Mexico, but like, what's more than the whole population of the US and Canada?

• 1:30:26Ben Gilbert?

  Yep. It's wild. It's a huge number of users transacting with, I think, six and a half million merchants 27 times per year. Then when we go into segments, the largest segment of that growth was food delivery, but obviously they had lots of growth in hotel and travel and would have had even more since pandemic in the last year, which I do think will rebound in a big way, you know, over the next couple of years. New initiatives has actually been a huge revenue driver for them, has yet to be a big source of profitability, but that's things like actually setting up grocery stores. Like, they're, they're really going hard. They're, they're doing things like local flower delivery, local medicine delivery, and having these hubs of actual grocery stores.

• 1:31:10David Rosenthal?

  Yeah. When you hear Tony at DoorDash talk about all the things DoorDash can do in the future, just look on over at Meituan and like, take whatever they're doing today and cut it by three quarters and that's like the vision for DoorDash.

• 1:31:23Ben Gilbert?

  That's such a good way of putting it. And DoorDash is already priced as if this is going to happen for them. Like, Meituan here is trading at 14x revenue.

• 1:31:35Ben Gilbert?

  And DoorDash is trading somewhere in that same neighborhood, around 15, 16x. And so investors have sort of decided that this phenomenon that happened when you win food delivery and you can tackle these other businesses on too, is just like going to go well for DoorDash, which is totally fascinating.

• 1:31:53David Rosenthal?

  I want to get into the product aspects of this, but one of the big things for me in this story is like the primacy of the Dianping product and what it all unlocked. And the fact that it is a 18 year old product, right? So like DoorDash may be able to recreate this and whatnot, but like they don't have the benefit of an existing front door type product, compounding moat type product. And they've got business model, you know, orthogonalism here where their restaurant partners don't really want the level of granularity of reviews that you would need.

• 1:32:34Ben Gilbert?

  Right. You know, the only way to arrive at the endpoint that Meituan has arrived at is by inheriting 15 plus years of these existing relationships and data with restaurants in this particular way.

• 1:32:48David Rosenthal?

  One other, what, two other things I want to put in context here for Meituan and its current valuation. So on a scale of the business, let's just take revenue as opposed to GMV or profits.

• 1:33:04Ben Gilbert?

  But Which we should say revenue is only growing like 30% per year, not the monster 300% to 400% that we're seeing in profits.

• 1:33:11David Rosenthal?

  Yep. But on a size, on a scale versus DoorDash, we don't yet have full year numbers for 2020 for Meituan because they haven't reported Q4 yet, but let's just take 2019, full year 2019 numbers. As we said, they did about $15 billion in USD of net revenue in 2019.

• 1:33:34Ben Gilbert?

  And net revenue being that is all of their take of all the food delivery, plus all their just like revenue from all their other businesses, selling movie tickets and booking travel and all that stuff.

• 1:33:45David Rosenthal?

  Yep. DoorDash in 2020. So with the benefit of COVID, which accelerated their business, I forget exactly.

• 1:33:53Ben Gilbert?

  3X. They 3Xed revenue from 2019 to 2020.

• 1:33:56David Rosenthal?

  Yeah, they 3Xed revenue in 2020. Even with that 3X in 2020, a year later for DoorDash, they did $2.9 billion in net revenue. So we're talking about a business that is at least 5X the scale already of DoorDash.

• 1:34:12Ben Gilbert?

  Likely 6 to 7.

• 1:34:13David Rosenthal?

  Likely 6 to 7X the scale. Now let's turn to the profitability side of, of the equation here. So like we said, they generated a billion dollars in 2019, again, sticking to 2019 in operating cash flow. Zoom, which obviously is a completely different business and much higher margin, you know, incredible gross margins, incredible business on every dimension. They just reported the other day, 2020 numbers, Q4 2020 and full year 2020 numbers, and they did $1.5 billion of operating cash flow in 2020. So like already, Meituan is doing more operating cash flow likely than Zoom.

• 1:34:59Ben Gilbert?

  That's a really good guy because I've never thought to compare those. That's a really good.

• 1:35:02David Rosenthal?

  Obviously completely different businesses, but Zoom in my mind is like the canonical pure software margin, incredible cash flow monster.

• 1:35:12Ben Gilbert?

  Yeah.

• 1:35:12David Rosenthal?

  And just the scale of Meituan, like I think of Zoom and DoorDash on opposite ends of the spectrum. And here's Meituan that's doing 6, 7X the scale of revenue of DoorDash and more cash flow dollars than Zoom.

• 1:35:26Ben Gilbert?

  Yeah, there's so many dimensions of business model awesomeness that is accruing to them. I mean, one is like they've squashed their competitors. They have pricing power. The other that we talked about is that just they're layering on all these other sources of revenue on top of CAC they've already paid, or at least for new customers that they're acquiring, you know, they're able to spread that across so many different transaction types that they'll do. Another one that we haven't talked about is that like Amazon, they're now making a lot of money on online marketing services, which is pure profit revenue. You have users buying stuff on your property. As soon as you introduce the ability to advertise to them, you get to keep 100% of those dollars that the merchants are paying you. Like it's unbelievable gross

• 1:36:11Ben Gilbert?

  merchant business, as good as it gets. And so 16% of revenue is now the ads business that they've layered on top, which is a business that you only get to earn the right to have when you have a scale business where people are coming to your destination and buying things on it. So there's like yet that other level of just leaning into operating leverage there.

• 1:36:33David Rosenthal?

  Well, then there's, there's even another level beyond that of they're also selling B2B SaaS to merchants of every type on their platform. So, you know, you're a, you're a restaurant, right? Like all the services that Square provides you, except for the core payments infrastructure, but like, you know, managing your inventory, doing your booking system, like all, all that stuff, your payroll, your HR. Well, Betuan's happy to sell that to you.

• 1:37:00Ben Gilbert?

  Not to mention now that they have your financial data, they're happy to be your lender also. They're pulling the sort of Square Capital game here where they're giving loans to merchants.

• 1:37:09David Rosenthal?

  Totally.

• 1:37:10Ben Gilbert?

  Which, as we've also covered on many an episode, is an excellent, excellent business to be in. So they have figured out how to do food delivery and not lose money. And that is a massive understatement. So all these things point you in a direction of, oh my God, this company is a monster. Like, how could you be short? Like, what's the concern here? Maybe travel doesn't come back and that's their highest margin revenue. So, you know, if that doesn't come back, that's a big deal.

• 1:37:40David Rosenthal?

  Yeah, seems unlikely. It's not going to come back though. And I think it already is coming back.

• 1:37:45Ben Gilbert?

  And it's clear that like they're taking share in that space.

• 1:37:48David Rosenthal?

  Yep. So I think, you know, look, this company is a juggernaut. Like there's just no two ways about it. I do think to I won't say bear cases, but things like to be watchful of that I could see. One is they obviously have a fantastic relationship with Tencent. Tencent owns 20% of the company. I think everybody's very happy with that. But as much of a juggernaut as Meituan is, Tencent is even more of a juggernaut as we keep harping on on this episode. And frankly, on this entire show, if that relationship were to sour at all, because Tencent is the ultimate top level

• 1:38:32David Rosenthal?

  in a source of and control of traffic in the Chinese ecosystem right now. Now, ByteDance is on the rise, they're a threat to Tencent and whatnot, but for the time being Tencent is dominant. Any fracture in that relationship would certainly be detrimental to Meituan.

• 1:38:49Ben Gilbert?

  So for the 50% of their customers who use their mini program, do they actually own the customers? Or does Tencent really own the customers and they're just letting Meituan use them? Like, well, I guess the true test of this would be if Tencent got mad and punted the mini program, you know, made it hard to find or kicked it off completely. How many of those people would actually go and download Meituan's app directly?

• 1:39:16David Rosenthal?

  Right, right. I mean, I think a lot.

• 1:39:19Ben Gilbert?

  Yeah.

• 1:39:19David Rosenthal?

  There's nobody else out there that has the scale of different service lines and merchants and reviews. Most importantly, the review database and asset as Meituan. So, so I think it's very defensible, but it's a dependency of the business. I think the other, this is more forward looking than risks the existing business, but we didn't talk as much about what's in the new initiatives line for Meituan. And there are a lot of things, but the biggest and the most important strategically right now is community group buying, which for those of you who aren't familiar with it, despite sharing two words with group buying and the Groupon space

• 1:40:03David Rosenthal?

  is quite a different phenomenon and a uniquely Chinese phenomenon right now, but it's hugely strategic.

• 1:40:10Ben Gilbert?

  Well, and just to explain it super quickly, it's group buying in e-commerce, not group buying at your favorite local boutique. Like it is you inviting your friends in a fun way to shop with you for something that's going to be shipped to you. And the cost structure is totally different to operate that type of business than a Groupon business.

• 1:40:26David Rosenthal?

  Yeah, and there's that. So what you're describing is Pinduoduo's business, which is a competitive front as well.

• 1:40:31Ben Gilbert?

  Oh, I thought that's what you were alluding to.

• 1:40:33David Rosenthal?

  No, so it's actually, well, that's, that's part of the whole ecosystem, but very specifically around groceries is where the war is, the big front is right now. So Pinduoduo does, as we talked about in our episode, and does exactly what you just described then. Community group buying, though, is kind of like a grocery store meets multi-level marketing. And so the idea is that a member of a community becomes a selling agent for the goods producers, in this case, mostly groceries. So like you're a farmer, you're making, you know, producing groceries, so the like. A agent from various communities brings people into then as a group buy from you.

• 1:41:18David Rosenthal?

  So you're disintermediating the whole grocery store value chain. And this is a, a major front that Meituan has invested in hugely in adding to the app. And so you can, as a group leader, start a group, build relationships with producers, get clients, make money, run a business here. And then as customers, you get much better produce at a much better price. And a lot of this traffic is flowing through WeChat, too. So the two leading players right now in this space are Meituan and Pinduoduo, which is also broadening into this business.

• 1:41:59Ben Gilbert?

  So you weren't really thinking about like, ooh, Meituan's not going to be successful in taking PDD's core business. You're thinking is for the next frontier they're chasing, that they're both chasing and will have overlap, they may not win that.

• 1:42:14David Rosenthal?

  Yeah. I think one of the themes that I see from this episode is like, the more stuff you control, particularly in China tech.

• 1:42:23David Rosenthal?

  The better your company is and the better your economics get and the more your flywheel spins and the more customers you get.

• 1:42:29Ben Gilbert?

  Yeah.

• 1:42:29David Rosenthal?

  And so part of the thesis is like Meituan, because of their incredible strength already, can keep winning every front. But if they don't win every front, you know, they could end up like Alibaba where all of a sudden they're losing on a bunch of fronts.

• 1:42:43Ben Gilbert?

  Right. Oh, man. There's a big game of King of the Hill going on constantly and you gotta always be defending your turf and be trying to find the next one.

• 1:42:53David Rosenthal?

  Totally. Now, again, that's the future. Like, I don't think that's a bear case for Meituan right now or Bintu.

• 1:42:59Ben Gilbert?

  Right. Man, it's so funny. Okay, so we have danced around the idea of power, but we haven't named any yet. So why don't we formalize that and get into our power section here? So of the seven powers, the Hamilton-Helmert seven powers of counter positioning, scale economies, switching costs, network economies, process power, branding, or cornered resource. The first one that like really, really, really hits me here are scale economies where Meituan has been able to become very profitable very quickly because of scale economies. And I think the way to think about it is sort of the Netflix comparison where because Netflix has the most viewers, they can pay the most for content because they can amortize it across the most viewers.

• 1:43:44Ben Gilbert?

  It's like, hey, there's already 475 million people using Meituan and transacting. Can we put something else in front of them? That they could, you know, potentially also transact with? And the fixed cost to stand up, whatever that business are, are the cheapest for Meituan relative to anybody who's standing it up and doesn't have all those people they could spread out the fixed costs of standing up that business to. That's sort of how I think about it.

• 1:44:11David Rosenthal?

  Yeah, they can go invest. You know, I don't know, they probably have announced how much they're investing in community group buying, but they can go invest billions of dollars into it and it's worth it, right? Because they have 600 million users that they're going to stick there in front of.

• 1:44:27Ben Gilbert?

  Yeah, or if like, let's say the business is cheap to stand up, but expensive to acquire customers, like it's not for Meituan.

• 1:44:34David Rosenthal?

  Right, right. Cause they already have all the customers and they just cross sell across. Yep, totally.

• 1:44:40Ben Gilbert?

  So that's the big one that hit me like a ton of bricks when I was like, why is Mate one so freaking profitable?

• 1:44:45David Rosenthal?

  So the other one that I was thinking about, and I'm not, maybe we can talk through this live. I don't know what the right taxonomy is here, whether this is a cornered resource or switching costs, but the power of the review database, but the reviews themselves and then all of the data around it for recommendations is enormous here. And I, I think we showed in the story, like just such a key part of what's become defensible in this space. And I already thought that Yelp blew it on so many fronts in the U S, but like, this is just such a stark contrast of like, how valuable Yelp could have been and

• 1:45:28Ben Gilbert?

  Totally.

• 1:45:28David Rosenthal?

  how not valuable they are. So I think this is switching costs because once you're on the, as a consumer, once you're on the Dianping review platform, it's, I don't think it's necessarily a cornered resource in that like, you could go use another review platform and somebody else could stand up a review platform and have all the listings that Dianping has. But as a consumer, you wouldn't get the benefit of all the 18 years worth of review data that's already in there.

• 1:46:01Ben Gilbert?

  Right. Huh. And you're, the more simplistic angle on that would be, well, it is a cornered resource and it's Mate one's cornered resource and no one else has all those reviews.

• 1:46:08David Rosenthal?

  Yeah. So maybe it's that too. I was thinking about it like in a Slack context of like, yeah, I could switch from Slack to some other messaging platform for my company, but then I'd lose all the message history that I have.

• 1:46:20Ben Gilbert?

  Hmm. Yep.

• 1:46:22David Rosenthal?

  Either way, whatever you want to call it, I think that's a big power.

• 1:46:26Ben Gilbert?

  Yeah, for sure. What's interesting to me here is they don't really have network economies. Like, a lot of the times when we do stuff on this show, the answer is network economies. It's like, it's interesting for a Tencent-backed company, it is not a social business. It's just not. I mean, maybe they will be in this group buying thing, but it's, that's not where their power comes from now. Like, if your friend switches to something else, you don't care. But you care, I suppose, if, like, your favorite restaurant is not on there anymore.

• 1:46:57David Rosenthal?

  Right, right. I think there's some lightweight social features of, like, you can plan trips together. You can book restaurants together. You can do orders at restaurants together, that kind of stuff. But I do think there's a two-sided network effect of the merchants and, which you alluded to, the merchants and the consumers that, as a consumer, you want to have all the merchants on there, and as a merchant, you want to have all the consumers. But that's not that defensible. Like, there are other platforms like Ulama that have all the merchants and could have all the consumers, too.

• 1:47:29Ben Gilbert?

  Yep. So, anyway, I think we're speaking the same language here, that lots of scale economies may be a cornered resource, and if not a cornered resource, then definitely switching costs.

• 1:47:40David Rosenthal?

  Yep. Is there counter positioning here, too?

• 1:47:44Ben Gilbert?

  Versus who?

• 1:47:45David Rosenthal?

  Well, I'm thinking about Ctrip, and I don't know enough of the detail about how they've won the travel market from Ctrip, but I would imagine that they were probably able to subsidize the consumer side in order to gain share in a way that Ctrip couldn't, because Meituan has, as we've said, all these other businesses that they're also getting contribution dollars from their customer base.

• 1:48:13Ben Gilbert?

  Maybe. I think the way that I sort of think about counter positioning is, why is it that Ctrip would be doing something harmful to their own business by chasing this? And I'm not sure they would. It's just that it would be really expensive for them to go and acquire all these customers. So it's more like scale economies.

• 1:48:33David Rosenthal?

  Yep. Yeah, I think you're right.

• 1:48:35Ben Gilbert?

  As always, we feel they're open for interpretation, but we need Hamilton to tell us that's okay. All right. What would have happened otherwise? The way we want to do this section is what would have happened if they didn't merge? And the answer is only one of them would have been left standing. The question just is, how do you get there? They both could have raised one more round of capital and then merged. Or one of them could have raised one more round of capital and then they would have squashed the other one. And I think it just becomes this thing of like, if they both kept raising huge amounts of capital, eventually they both just go out of business because those businesses were not profitable. And arguably, there's some point where you've taken on so much capital where your business can't get valuable enough to justify a combination.

• 1:49:20Ben Gilbert?

  But I think it was just kind of like a high stakes game of chicken where, you know, they had been talking for years and when was the right time to merge? And, you know, how much dilution can we spare before, like, how many new shareholders do we have to bring on before we actually do get to merge? And say, okay, you own this much, I own this much, and we get profitable.

• 1:49:37David Rosenthal?

  And Tao Jiang talks about this on the evolving for the next billion nine nine six podcast that, yeah, they've been having conversations for years. Maybe Ullama knew about it, maybe they didn't, but yeah, this was gonna happen at some point.

• 1:49:50Ben Gilbert?

  Yep, yep. Playbook.

• 1:49:53David Rosenthal?

  Yeah, you said you have a bunch of them, right?

• 1:49:55Ben Gilbert?

  I do have a bunch of them. So one of them is the thing we haven't talked about yet, which is the joy of being in a growing market. So e-commerce in 2017 was a 20% saturation industry that had saturated, you know, 20% of all commerce. Real world services was only 5%. So while Alibaba is definitely in this growing, you know, segment where more commerce is shifting to online, there was way more opportunity in the retail services industry. And that leads to the sort of excitement that investors and entrepreneurs had around the offline to online, or as they refer to it, the O to O business, which ended up actually becoming the key

• 1:50:39Ben Gilbert?

  to sort of ascending to become one of the top three Chinese tech companies. You had, you know, an E-commerce company, which was sort of online to offline, but a far less complex version of a previous generation. Baidu, which is a digital only company with search and Tencent, which is gaming and social, a digital only company. And so your way of getting to capture enough margin dollars to become as big and successful as a business as one of those was this offline to online movement. And they were sort of the ones that emerged successful in that. And it was in this crazy, fast growing, plenty of headroom ahead of it thing, where you had only 5% penetration in 2017.

• 1:51:19David Rosenthal?

  It's also a good thing like to highlight in the West, I don't think we think as much about the fact that like what this story proves, which is that like everything can come online. I think if you were to ask people in China, and certainly if you were to ask Wang Sheng, whether there were any category of dollar spend in China that he could not bring on the platform someday, he would say absolutely not. It can all be on the platform. I mean, literally, they're going to rural farmers and they're selling online directly to customers facilitated by Meituan, you know, their karaoke, you know, any, any activity you want to do, any store you want to visit, you pay with Meituan in a store, you go

• 1:52:03David Rosenthal?

  shop, you want to go shop in a local grocery store in the equivalent of a Safeway? Cool. That's cool. Like do it with the Meituan app while you're there in the store.

• 1:52:10Ben Gilbert?

  And David, I know this is like a personal investment thesis of yours, which is don't, you know, bet on the incumbents to effectively go through digital transformation. In the long run, you just bet on tech companies to figure out how to successfully move the needs served by those incumbents online.

• 1:52:26David Rosenthal?

  Yeah. But I think it's even from that perspective, for me, this is eye opening and only possible because China leapfrogged in a very real sense with bringing their population online. But just like all these things that you would never even think could be a digital transaction can become a digital transaction.

• 1:52:46Ben Gilbert?

  Yeah, it's a great point. Speaking of things that we don't do as much in the West, I think this thing that Meituan did in amortizing their customer acquisition costs over a crap ton of businesses that they put in front of the customer. Like, American companies don't do this as much. It's like taking our large customer base and offering completely different things to them. I mean, Amazon's probably the best example by bundling more and more things into Prime to sort of expose you. Like, I never would have thought like, oh, this company that sells books, or let's even say it's further in their journey, that like this company that has the everything store is also going to be one of the top two players in movies, like in streaming movies. Like, I wouldn't have bet on that. But Amazon does a really good job of understanding you're our customer,

• 1:53:30Ben Gilbert?

  and we're going to put more and more stuff in front of you. I don't know that other companies do that as much. Like, people kind of stick to their lane.

• 1:53:37David Rosenthal?

  Yeah. This was, ah, this was my other big playbook theme I really wanted to highlight for me, which is thinking about exactly what you said through the lens of how China and Meituan and seeing what everything that's going on there. Amazon's the best at this in the West, and they're getting like a C on a global scale.

• 1:53:56Ben Gilbert?

  Like, Uber really wanted to do it and sold this vision of we're gonna, there's Uber everything. We're gonna eventually be able to move all this stuff around. And, you know, it doesn't matter if you're taking a ride or something's taking a ride to you, you're gonna get it through Uber. And like, it just didn't happen.

• 1:54:10David Rosenthal?

  Mm hmm. And I think what's also really interesting for me is that the product experience, the customer experience, is so much better when it all works together. And just like the dichotomy of like, how the food ecosystem works on Meituan in China versus the super crappy that I now see way version it works in the US of like, reviews are disconnected from the food, which is disconnected from the dishes, which is disconnected from how I order it for delivery, which is disconnected from how I order it in the restaurant, which is disconnected from how I book the restaurant. Like, that's a crappy customer experience.

• 1:54:51Ben Gilbert?

  Right. I look it up on Yelp, and then I book it on Resy or Tok or OpenTable. And then the billing is completely separated from all those things. But if I order it at home, then actually I should go to DoorDash, even if it's coming from the same restaurant. It's like, it's a nightmare.

• 1:55:07David Rosenthal?

  Total nightmare.

• 1:55:08Ben Gilbert?

  It's a great point. Yeah, the the vertical integration not only creates a business that can capture more profits, but also a better consumer experience.

• 1:55:17David Rosenthal?

  Yeah, it's like the ultimate irony, given that Wangxing and everything in China started as just copying the US. And now it's like, wow, the US is so far behind.

• 1:55:28Ben Gilbert?

  Yes, that's a huge point I want to drive home on this episode is like, the world, and we've talked about this on other episodes, too, but China is not the place copying all the American companies at this point. There are so many things, including payments, infrastructure, and like fintech generally, social buying, like the US culturally has not adopted social buying the way that that it has in China. And everything that Meituan is doing, it's hard to even put a category on it because it's offline to online. It is the services economy, and we don't have a direct comp. We have 20 companies that roll up to that sort of same thing. And I think that there is a huge point to take home, which is China is leading in innovation on mobile and on the Internet in a way that in many categories, the US will

• 1:56:13Ben Gilbert?

  be years before they come to.

• 1:56:15David Rosenthal?

  Totally. All right. What else you got?

• 1:56:18Ben Gilbert?

  All right. So another big one that we didn't really talk about, which was a secular trend going on in China that enabled all this to happen was the growth of the middle class. You know, the fact that tier two and tier three cities became an addressable population that could spend on things like smartphones and then things that, you know, were apps on smartphones, wouldn't have been possible a decade, two decades before this came online.

• 1:56:41David Rosenthal?

  Hundred percent.

• 1:56:43Ben Gilbert?

  So I think that's a big realization.

• 1:56:45David Rosenthal?

  And then the continued diffusion of wealth out from, you know, I feel like a couple years ago, when all this was getting started, you know, online to offline, and Meituan and Tianping, it was second and third tier cities. Now it's fourth tier cities, it's the countryside, it's, you know, that's what community group buying is about.

• 1:57:05Ben Gilbert?

  That's a really good point. I hadn't followed the sort of continued dispersion of wealth throughout the, you know, the, the lower middle class as much. I would be remiss if I didn't underscore again Tencent's unique strategy of both being a financial investor and a thumb on the scale partner. You know, it's a little, you gotta make the deal because otherwise someone else is going to. It's just a, it's a wild amount of leverage that they have in any deal. And then they sort of come through like that's just a deep, deep pile of capital available to you to go chase an opportunity and push someone else out of business and they'll give you traffic on top of the opportunity. And like, most of what you're spending your capital on is traffic anyway. So Tencent actually can afford to invest less in your

• 1:57:48Ben Gilbert?

  company and invest more in the form of traffic, but they don't, they do both. It's huge amounts of capital and huge amounts of traffic. So it's a, it's an unbelievable business and it's something that is not done for one reason or another in the US, probably for antitrust concerns.

• 1:58:04David Rosenthal?

  Yeah, probably. Two quick things on that. One was, we didn't talk about the valuations of the last rounds that Dianping and Meituan raised before they merged, but it exactly reflects what you're saying. So Meituan raised 700 million at a $7 billion valuation and Dianping raised like 3, 400 at a $4 billion valuation because Tencent's like, we bring the traffic.

• 1:58:31Ben Gilbert?

  Right. You'll sell us 10% of your company.

• 1:58:32David Rosenthal?

  Yeah, you're not going to need all that money.

• 1:58:34Ben Gilbert?

  Whereas you have Stripe raising, you know, these pittances at $100 billion valuation.

• 1:58:38David Rosenthal?

  Yep, yep, yep. And then the other thing is, um, I think it was on our Roblox DPO preview analysis with Mario. Was it you or Mario who said, uh, I think it was Mario that was said, uh, Tencent is like the most interesting man in the world because Roblox is entering China with a JV with Tencent. It's like, I don't always enter China, but when I do, I enter with Tencent.

• 1:59:00Ben Gilbert?

  You have to. I mean, it's crazy. And Tencent owns 50% of that or 49% of that JV. It's like for us bringing you into the country and the privilege of, uh, of that happening, we're going to take half of your revenue.

• 1:59:11David Rosenthal?

  Bananas.

• 1:59:13Ben Gilbert?

  It's crazy. So I brought up antitrust there and that's the thing that we didn't talk about on this episode at all. What does antitrust look like in China? Cause if they're able to squeeze Ulama out and really be the only player and really have pricing power over consumers and over restaurants and over all these like, that's something that in the US would get deeply scrutinized in, especially in the climate that we're in now. So how does that work in China?

• 1:59:38David Rosenthal?

  That's a good question. Honestly, that's probably the biggest risk from like an investment thesis standpoint of anything in China, which is, I don't know, but I think it basically, the way it works is whatever the Communist Party wants to do.

• 1:59:52Ben Gilbert?

  Right.

• 1:59:53David Rosenthal?

  Or allow or not allow.

• 1:59:55Ben Gilbert?

  I have no idea, but yeah, if the business model and free market dynamics are such that you just have as much room to run as you want on pricing and profitability as you want, like in our system in the US, we would frown upon that. In another system, you could imagine someone saying, okay, well, we just have to have a cut.

• 2:00:14David Rosenthal?

  Yeah.

• 2:00:15Ben Gilbert?

  And I don't really know how it works.

• 2:00:17David Rosenthal?

  I don't know whether it's a cut or more like a, that's cool. You keep doing that. But if stuff starts happening that we don't like politically, kind of like Wang Sheng's Twitter clone back in the day, you know, the, the plug gets pulled on you. And we're seeing that risk with Alibaba now with Jack Ma and, and the Ant IPO plug getting pulled. So that risk is real.

• 2:00:40Ben Gilbert?

  Yeah, it's a great point. Okay. Couple more here. So we are seeing food as the go to market strategy for a company that is ultimately getting into all consumer services. You know, we, we thought about it in this way of like getting free profit dollars because you've already paid off your costs and expanding in all these other businesses. But what we're actually seeing here is like land and expand, but in consumer. It's like this classic B2B concept where you have a go to market wedge, you get embedded and then you start selling more and more stuff. Like this does exist in the US, but it's what enterprise companies do.

• 2:01:15David Rosenthal?

  Sales force.

• 2:01:16Ben Gilbert?

  Oh my gosh, you bet. You bet. So there's, there's definitely an element there. This land and expand leads to, you know, more stickiness, more retention in the very same way that you do in, in the enterprise. And David, to your point on switching costs, that's where the real switching costs come from. When you're buying everything from one provider, it's hard to rip that provider out.

• 2:01:39David Rosenthal?

  Yeah, totally.

• 2:01:40Ben Gilbert?

  All right. So that is all I've got for playbook. Do you have any more?

• 2:01:43David Rosenthal?

  Nope. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 2:01:51Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 2:02:01David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 2:02:22Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 2:02:34David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 2:02:45Ben Gilbert?

  All right. Well, value creation and value capture. So a long time listeners will know there's two elements to this. One, how does the value that they're capturing in the world compare to the value they create? Are they doing a good job of that like Google or are they doing a bad job like Wikipedia? Or of course, not a business, it's a foundation, but.

• 2:03:03David Rosenthal?

  Groupon created a lot of value for consumers, not for merchants.

• 2:03:07Ben Gilbert?

  That's a great point, unfortunately. And then secondarily, you know, the more altruistic one, value creation versus value destruction. So on this first one, they're doing a damn good job capturing value. I think if they were in a knife fight still, you'd be like, guys, like, you can't seem to turn a profit in this business. I'm worried about the long term. That's no longer a concern. So I think kind of a no brainer here on creating a ton of value and capturing their fair share of it and probably will capture even more in the future. Value creation versus value destruction. You know, in, in the US, we feel, a lot of people feel very strongly that these food delivery companies are not great if you own a restaurant, you know, that it's not great

• 2:03:51Ben Gilbert?

  to participate, but you also kind of have to participate because they're aggregating. You know, that DoorDash, Uber Eats are capturing more and more of the consumers.

• 2:03:59David Rosenthal?

  And the couriers too, you know, there've been strikes, union organizing.

• 2:04:05Ben Gilbert?

  For sure. Everyone's getting squeezed. So what dynamics carry over to Meituan? Like, is it as gnarly or gnarlier for restaurants using Meituan as it is for DoorDash? Because you could imagine it's even worse because they also have the platform that says your restaurant's a one-star restaurant. And then they're trying to extract some big percentage of orders. Oh, by the way, they have all the customers.

• 2:04:28David Rosenthal?

  Yeah, I don't know. I didn't find anything one way or the other in my research.

• 2:04:34Ben Gilbert?

  And in part, it's because like, you know, we're all reading newspapers all the time in the US. There's going to be many, many people who feel fine writing a takedown piece of some US-based tech companies. Like, we're not really reading the Chinese press that's critical of these businesses.

• 2:04:50David Rosenthal?

  Well, I don't know. This is like way out there at the limb speculation for me. So listeners who know much more about China or live in China, feel free to correct me in the Slack or email us at [email protected]. But I think the government in China, one of the things that would make them upset and come after a monopoly platform would be, like, I think it's in the government's best interest in China for restaurants and local businesses to be successful. And if Meituan were putting them out of business, I think the CCP would want to go have a chat with Wangxing.

• 2:05:33Ben Gilbert?

  That's a great point. Yes, there's a check and a balance in that way. Well, listeners, if you know more about this, we'd be very, very curious.

• 2:05:42David Rosenthal?

  Yeah, totally.

• 2:05:43Ben Gilbert?

  All right. So grading, is there any scenario where it was not an A+ for these two companies to merge? And for, let's define this real quick. If you're a shareholder of Meituan or a shareholder of Dianping in 2016, is there any way that you could have had a better return on your dollar than these companies combining and achieving not only the profit, but the market cap that they have today?

• 2:06:07David Rosenthal?

  Yes, 100%. If your name is Alibaba, this was an F minus.

• 2:06:13Ben Gilbert?

  Oh, yeah. Because if you think about it, their cost basis was they invested at rounds from

• 2:06:19David Rosenthal?

  The Series B.

• 2:06:19Ben Gilbert?

  valuation of, what, $1 billion through $30 billion?

• 2:06:24David Rosenthal?

  I'm sure way less than $1 billion. The Series B was $50 million in Meituan. So, you know, I don't know, maybe the valuation was 300 something.

• 2:06:35Ben Gilbert?

  Okay, so they got obviously a very nice markup by these companies merging and at a combined value of, I guess, what would the combined value be? I don't know. At the IPO, at least, it was 54, 56 billion. Was the combined value 30 billion?

• 2:06:53David Rosenthal?

  At the merger, I think I want to say it was more like 15.

• 2:06:57Ben Gilbert?

  Okay. So, you know, nice return. The downside, actually, for them, well, two downsides. One, their first blunder was getting out of something that would then, you know, go stack another $300 billion of market cap on top of that, or just shy of 300. The second mistake was investing in the competitor.

• 2:07:17David Rosenthal?

  Yeah. The biggest, biggest overall mistake was allowing this to happen. I mean, maybe there was nothing they could have done to avoid it, but now they have an existential threat competitor to Alibaba that exists out there with Tencent as the primary shareholder that's just been destroying them in this market and potentially in many more to come.

• 2:07:39Ben Gilbert?

  Yeah, and they're doubly exposed. I mean, they're exposed in their core business, but they made a huge bet on the rival that didn't pay off.

• 2:07:46David Rosenthal?

  Yep. We should be clear too. Ulama still exists. It's not dead. The story is not over. It's a big business.

• 2:07:54Ben Gilbert?

  You know, most standards.

• 2:07:55David Rosenthal?

  Yeah, there probably are a lot of listeners in China right now who are screaming at us like Ulama is not dead, which is totally true, but Meituan has 67% market share.

• 2:08:04Ben Gilbert?

  So then the question becomes if you were Tencent, was there any better outcome than these companies merging?

• 2:08:10David Rosenthal?

  Tencent is just so gangster.

• 2:08:12Ben Gilbert?

  They're like Sequoia China, but with traffic.

• 2:08:14David Rosenthal?

  Yeah. And that's exactly what they're like. Sequoia China is only slightly less gangster. I think Tencent and Sequoia did better in this transaction than the company itself.

• 2:08:30Ben Gilbert?

  Huh. Here's a question. Has Sequoia done better on Meituan or DoorDash?

• 2:08:36David Rosenthal?

  That's a good question. So I pulled up at the IPO.

• 2:08:41Ben Gilbert?

  Sequoia passed on seed, but they invested in Series A and everything afterwards in DoorDash.

• 2:08:46David Rosenthal?

  So according to the Wall Street Journal, Sequoia invested around 400 million into Meituan, Dianping, all of them over the years. And at IPO, their shares were worth about $5 billion at IPO. So that's a $4.9 billion, so $4.5 billion return at IPO. But then the company is up 6X since IPO.

• 2:09:14Ben Gilbert?

  Well, just think about they own 10% of a $270 billion company.

• 2:09:17David Rosenthal?

  Right.

• 2:09:18Ben Gilbert?

  If they held. So it's a 27, 20, I don't know, 26, $25 billion absolute return.

• 2:09:26Ben Gilbert?

  So how much did Sequoia return on DoorDash ballpark?

• 2:09:31David Rosenthal?

  So pre-IPO, Sequoia owned a little over 18% of DoorDash. I forget what the dilution was in the IPO, but let's assume 10%.

• 2:09:45Ben Gilbert?

  That seems reasonable.

• 2:09:46David Rosenthal?

  Seems reasonable. Okay. So that would take them down to what?

• 2:09:51David Rosenthal?

  I don't know, let's make it easy 15% that they own, which probably a little more than that of DoorDash.

• 2:09:57Ben Gilbert?

  So now 15% of where they're trading today at a market cap of 50 ish billion?

• 2:10:05David Rosenthal?

  Yep. So 7 billion. So yeah, they're doing a lot better on Metone.

• 2:10:09Ben Gilbert?

  It's no competition, way better on Metone. Fascinating. It was closer on DoorDash when at the end of IPO day, but no competition now.

• 2:10:19David Rosenthal?

  You know what this also makes me think of for a long time, this rule in venture capital that I remember at Madrona, I remember afterwards, like always, you know, ownership, ownership, ownership, ownership, ownership is paramount. I wonder if that's different now. I certainly have a different perspective. Like 18% ownership in DoorDash. Well, yeah, that I mean, that's great, but like, shoot, I'd take 5% ownership in Metone over that.

• 2:10:44Ben Gilbert?

  Yeah, just, I mean, it gets back to the thing that Packy flagged for all of us a few weeks ago, which was what is the likelihood that you could become a, you know, mega, mega outlier, multi hundred billion dollar company? And I don't know, David, I still think it's important from an early stage investment perspective because there are still very few Metones. Like if the argument was there's more Metones being created than ever, and there are, you know, a dozen, two dozen, three dozen, you know, near trillion dollar or soon to be trillion dollar companies, that'd be one thing. To me, it's at least the way I sort of rationalized it is sure, all the valuations got bigger, but it's still incredibly rare to be one of those, whatever we want to call this class of company.

• 2:11:29David Rosenthal?

  Hey, I think that's totally true. On the other hand, I do think there's some trickle down effect here where like depending on your fund size, I think there are a lot more one to 10 billion dollar companies out there than people imagined a few years ago.

• 2:11:44Ben Gilbert?

  Very true. Order of magnitude, if not two more.

• 2:11:47David Rosenthal?

  Yep. So if you're a fund size of call it less than $500 million, ownership maybe isn't quite as important as you thought it was.

• 2:11:56Ben Gilbert?

  Hmm. It's an interesting idea. Well, I think that about wraps it for grading. We have some good carve outs today.

• 2:12:03David Rosenthal?

  Yeah.

• 2:12:04Ben Gilbert?

  That we should hit here before we head home. Do you want to start?

• 2:12:07David Rosenthal?

  Yeah, I can start. So my carve out is a great, short book that I just read. I broke my rule about not reading any recent books, but this one felt like not too much of a commitment and just a really interesting, timely topic called Extraterrestrial by Avi Loeb. Have you heard about this, Ben?

• 2:12:29Ben Gilbert?

  No.

• 2:12:30David Rosenthal?

  It's great. So Avi is the Chair of the Harvard Astronomy Department, and the book is about, do you remember Umuamua, the extraterrestrial, the visitor from the other solar system a few years ago?

• 2:12:45Ben Gilbert?

  No.

• 2:12:45David Rosenthal?

  That came through our solar system. This was all over the news and it was picked up by telescopes. It was this very odd object that entered our solar system. It's very rare for objects outside our solar system to enter our solar system. Had all these like really interesting properties. Scientists weren't sure what it was. And there was all this buzz like, oh, could it be like an alien spaceship? And then over the years, you know, the scientific consensus has basically said like, oh, it was a really flat shaped inner solar system asteroid. Comet, I guess it would be. Anyway, Avi has written this book and he's a widely respected, you know, incredible scientist.

• 2:13:26David Rosenthal?

  He's the Chair of the Astronomy Department at Harvard. And he's like, I don't know what this was. The properties of this thing are such that to decide it is a natural phenomenon, you have to bend over so backwards on so many dimensions that like, if you Occam's razor this thing, obviously the answer that comes out is this was extraterrestrial technology. And he's basically like, look, can I prove that? I don't have a photograph of it, but like, he goes through all the evidence.

• 2:13:56Ben Gilbert?

  Oh, fascinating.

• 2:13:57David Rosenthal?

  And he's really going against the scientific community here. And it's popular. It's a pop book. This isn't like a scientific article. But he makes this great point. He's like, You know Pascal's wager, which is, does God exist? And Pascal's famous wager is like, well, if you think about the consequences of one or the other, you're probably better off believing God exists because you'll be happier probably during life. And then if God does exist, you're better off.

• 2:14:22Ben Gilbert?

  It's low cost for you to do so.

• 2:14:24David Rosenthal?

  Yep, exactly. And so Dr. Loeb proposes what he calls the muamua wager of question is, was this alien technology or not? And similar to Pascal's wager, it's low cost to humanity to believe it was, but the upside is enormous versus the other way around. If you believe it wasn't, there's no upside. It's just status quo and the potential cost is enormous. And so he's like, well, if we believe, and he's, and he actually really genuinely believes it was extraterrestrial technology. Well, what does that open up for humanity?

• 2:15:06David Rosenthal?

  It opens up our minds to think about, well, if other civilizations out there can traverse light years, well, how could we do that?

• 2:15:17Ben Gilbert?

  That's really cool.

• 2:15:18David Rosenthal?

  It's really cool.

• 2:15:19Ben Gilbert?

  I should read it just to get my head out of, just to read something different. You know, I feel like consume a lot of the same media or the media that keeps me in the same headspace.

• 2:15:28David Rosenthal?

  Yeah, it's really good. And it's like 100 pages.

• 2:15:30Ben Gilbert?

  That's awesome. All right. Adding it to the list. My carve out is my favorite Substack and it is called Luttig's Learnings and it's a guy named John Luttig. He's a principal at Founders Fund and we actually cited his work on the SPAC episode, the SPAC LP episode that we did. This, like his writing spans so many different topics, but every single one I read, I'm like, oh my God, yeah. Like, wow, that's a huh, that is really well reasoned, logical, and the outcome is a little scary.

• 2:16:05Ben Gilbert?

  And makes me sort of question things. And the first one was, I maybe even talked about it on the show, around internet tailwinds that are slowing down, mobile tailwinds slowing down and sort of moving into a new type of businesses that will be created in the future that are just less favorable business models than existed over the last 20 years. And all these interesting decelerating trends, which for all the conventional tech wisdom around everything continues to accelerate, I found was fascinating. You know, around like, can we possibly have any more time in front of screens? No. So can there be bigger advertising businesses? Like, here's the only ways you could make them bigger. There's a lot of things like that in the piece that I found was really interesting. The second most recent one that I thought was great was around timeless versus time

• 2:16:47Ben Gilbert?

  full advice. And it was around, here's a few examples of sort of five pieces of advice that are generally widely held to be true. But if you just go to a different part of history, it would be terrible advice. So why do we hold them to be timeless? And maybe you should do the opposite now. And they're very like, they're things that we all take to be like, very sage pieces of wisdom.

• 2:17:11David Rosenthal?

  I read that. That was a really good piece.

• 2:17:13Ben Gilbert?

  That was really good.

• 2:17:14David Rosenthal?

  One of them was homeownership, right?

• 2:17:15Ben Gilbert?

  It's a good idea to own a home. And he was like, if you look at the tax advantages and you look at the massive increase in demand for homes, of course, the prices were going up because more people than ever could buy homes, wanted to buy homes. Is that the case now? There's all these reasons why you should actually examine that. You know, new tax incentives, all sorts of stuff. And then the most recent one was around this go-go time that we're in right now, that he calls finance as culture, which is, of course, everything that we're seeing with stocks only go up and everybody, you know, pop culture discusses finance and has various elements of finance that drift in and out of it. Finance has become sports. Finance has become entertainment. Finance has become conversations with friends and

• 2:17:56Ben Gilbert?

  examines what are the reasons that this could either, you know, pop or continue and sort of which camp do you want to believe? I just find all of his writings so good. And John, if you're listening, thanks for really writing really thought provoking work.

• 2:18:11David Rosenthal?

  Totally. 100% agree. Uh, should we do, I have one bonus carve out that relates to both of our carve outs. I think we got to say today.

• 2:18:19Ben Gilbert?

  Yeah.

• 2:18:20David Rosenthal?

  Given the founders fund connection is Starship.

• 2:18:25Ben Gilbert?

  Holy smokes.

• 2:18:26David Rosenthal?

  Holy smokes.

• 2:18:27Ben Gilbert?

  Flew, came back, landed and waited like a whole minute or two before it blew up.

• 2:18:33David Rosenthal?

  A whole minute. I mean, that's enough time for people to deplane when it lands on Mars.

• 2:18:37Ben Gilbert?

  Totally. If it blows up only a minute afterwards, then we're, no, I, it's an unbelievable accomplishment. And actually I was thinking when I watched that video of it landing earlier today, and they have some beautiful footage of it. I was wondering, related to your first carve out of like, well, did we just pass some test? Like in Star Trek, there's this thing called the prime directive where you can't interfere with a species who hasn't discovered warp technology yet. And when it came back and landed, I was like, do we just hit some threshold? Is there like, is somebody going to pop out and, you know, we get to meet aliens now? And obviously, you know, it's not warp technology, uh, it's just a bigger rocket, but so exciting for what it means for the future of space travel.

• 2:19:16David Rosenthal?

  Oh, on every dimension. So cool. Just think about how many Starlink satellites they can launch off of a starship. I don't know if that's part of the plan or not, but like.

• 2:19:27Ben Gilbert?

  They can launch six to seven times as many and is totally part of the plan.

• 2:19:31David Rosenthal?

  Yeah. Incredible.

• 2:19:33Ben Gilbert?

  I think it's 60 in a Falcon nine deployment versus a 400 in the Starship deployment.

• 2:19:39David Rosenthal?

  It'd be so cool if like, two years from now, we're all on Starlink internet.

• 2:19:43Ben Gilbert?

  Yeah. I mean, I literally had someone in my house today coming and fixing the internet. So, uh, if there was a more foolproof system than the, um, my decibel readings were off, getting from the pole to the inside of my house, which then got split. So it increased the decibel readings. I learned a lot. I didn't know decibels were involved with coax cables and sending signal, but it is. And, uh, it was a pain and it would be great if, uh, I don't know, maybe Starlink has sort of the same way that it ends up getting internet to your router. But yes, a better system than the, uh, ISPs we all deal with would be wonderful.

• 2:20:16David Rosenthal?

  That would be wonderful.

• 2:20:17Ben Gilbert?

  All right, listeners, that's it for today. Yeah, I think you should join the Slack. I think you should come join us. We want to talk to you about this episode. We want you to talk to other smart people. I'm deferring from my script here, but David and I just did some research and we realized that over 50% of the messages in the acquired Slack are DMs and most of them are not to us because like we just don't get that that many of them. So yeah.

• 2:20:40David Rosenthal?

  It's kind of cool. Like we're doing more with the Slack and we were looking at Slack, the company actually gives you some cool analytics and graphs. And if you look at the daily active usage and weekly active user graphs for the acquired Slack, it's like at a small level, but like they're on an exponential curve. Like it's super cool.

• 2:21:01Ben Gilbert?

  For sure. For sure. And it's mesh. You know, it's not hub and spoke. So like everyone is talking to each other, sometimes with us in channels, but also sometimes, you know, finding co-founders and finding investors and finding customers and making hires. It's just really cool. So I freaking love the community that we've developed here and you should join us in the Slack. If you want to be a deeper part of what we're doing, join the LP program. We'll be on Zoom calls with you once a month and LPs, we've got one of those coming up. So we'll see you soon. And yeah, then you'd get to hear Jake tell us about SaaS in 2021, which was a privilege to talk to him about. Such a fun guy. So, all right. If you like this episode and you're still listening, which would be shocking to me if you made it this far into us just telling you all the different ways that you can be a part of what we're doing.

• 2:21:46David Rosenthal?

  Well, it's like the end of Ferris Bueller, you know, when he's like, you're still here. What are you doing here? Go home. We're literally, I'm looking at the time count where we're, we'll cut some of this that we're recording, but we're at three hours and nine minutes. Like, go home.

• 2:21:59Ben Gilbert?

  All right. I'm cutting us off. Listeners, thank you so much. Share this episode. We'll see you next time.

• 2:22:05David Rosenthal?

  See you next time.