“Wechat is the only super app out there”: conversation with a Chinese tech veteran

This interview was extracted from an interview with Freeman Ding during the Impulso Podcast E108 “From Dianping to RedNote: Shanghai’s role in breeding successful consumer apps”. 

[00:01:35] 

What are the main differences you have experienced having lived in both Singapore and Shanghai?

Freeman: 

There’s quite a difference, living in Shanghai versus living in Singapore. Starting from the most basic part of life, which is eating – for example you can easily find Lingnan Chinese cuisine in Singapore, but for cuisines from other regions of China, like the northern part of China, there are much fewer choices in Singapore as compared to Shanghai. 

For Western, Japanese, or Korean cuisine, I think both Shanghai and Singapore are very international cities, so you can easily find all these. But for Indian cuisine, Singapore is better than Shanghai. 

In terms of lifestyle, I think that food delivery and/or ecommerce logistics is much, much better, and more sophisticated, not just in Shanghai, but in China. 

For example, when I order food delivery in Singapore and problems happen, I will have to get in touch with the platform’s customer service – but the customer service team is based in Malaysia, and cannot resolve the problem, they can only make refunds. But in China, a key difference is that food delivery apps allow you to talk directly to the rider or merchant through the app, removing the platform’s customer service as the middle man. 

[Additional context by Jianggan: When I was running Foodpanda, almost 10 years ago, the customer service was in Malaysia because it’s cheaper and easier to hire people. But one problem we couldn’t resolve is that while you can train a customer service agent to answer the questions in a standard way, food delivery is a very local business. 

For instance, if the customer service agent doesn’t have the local knowledge, when the customer tells you that they are on street A and the driver tells you that they are on street B, it’s very difficult to direct them, as opposed to if the customer service agent was more comfortable/ knowledgeable on the area.]

[00:06:40] 

Where do you think Shanghai stands in terms of the development of the Chinese internet services as a whole? 

Freeman: 

Shanghai is very important during the progress of the Chinese consumer tech industry, there are many companies that actually started or were founded in Shanghai. 

Search engine and video media companies

For instance, did you know Musical.ly was founded in Shanghai before it was acquired by ByteDance to become TikTok? Before Musical.ly, there were also other video giants founded in Shanghai such as Tudou and PPS.tv, but they were acquired or merged with other video websites in China about 10 years ago. Even non-video format media companies, like Xiaohongshu, was founded and is still currently operating in Shanghai. 

Ecommerce companies

We all know Alibaba was founded in Hangzhou, but there’s actually another very old company called EachNet which was founded in Shanghai, later acquired by eBay. EachNet was the main competitor to Alibaba at the very early stage, and they actually inspired Alibaba in the early days to turn itself from a B2B marketplace to a consumer-facing ecommerce website. 

Even now, Pinduoduo is also in Shanghai, in fact it’s very close to where we are, just within two kilometers from where we are.

Gaming companies. 

There are a lot of gaming studios in Shanghai. I think the most famous one currently is MiHoYo. But before that, there used to be a very large gaming company called Shanda Gaming. Shanda used to be the big name, equivalent to BAT (Baidu, Alibaba, Tencent). 

[Additional context by Jianggan: Shandao was founded by Chen Tianqiao, who became the richest man in China in his early 30s  by distributing Korean games. Chen retired very young to Singapore then to the US, where he is funding philanthropy and cutting edge neural science research]

There’s also another company, Moonton, the company behind Mobile Legends, which was founded in Shanghai. 

Location-based services, such as food delivery or even travel

Shanghai also played a very important role in the development of location-based services. For example, Ctrip or Trip.com, the number one player in the travel sector in the Chinese tech industry, was founded here. 

Another two important companies founded in Shanghai are Dianping and Ele.me. Ele.me was the first food delivery company in China, founded in 2009, and Meituan’s food delivery business started in 2013, 4 years later.

Before Ele.me, there was a company called Dianping, which I worked for. Dianping used to be a search engine for in-store dining, and they merged with Meituan in 2015 – one of the biggest mega-mergers in China’s tech industry. Later on, that company went to IPO under the name Meituan Dianping, and only recently renamed themselves as Meituan.

Interestingly, Ele.me was first invested by Dianping, but later on, it was fully acquired by Alibaba for US$9.5 billion in 2018.

[00:14:40]

Is there a reason that many of these Consumer Tech companies we are talking about started in Shanghai?

Historically, people have said that Shanghai doesn’t produce these kinds of huge companies. Out of the many companies which started in Shanghai, none of the major tech giants—like ByteDance, Alibaba, Tencent, or Baidu—are currently based in Shanghai. However, as you pointed out, there are many consumer-focused companies from Shanghai that have grown to be quite sizable and well-known. How do you reconcile these two perspectives? 

Freeman: 

I think it’s just a coincidence, you might notice that a lot of companies founded in Shanghai were either merged or controlled by another company at some point in time. I guess that’s the mindset of the entrepreneurs in Shanghai, they are probably more open to merger and acquisitions, instead of just IPO. From the exit point of view, I think that it’s a good mindset, as it at least brings a good exit for the management team as well as investors.

As for why many of these Consumer Tech companies we are talking about started in Shanghai, historically, Shanghai used to be the most trending city in China (even in East Asia). Before World War II, Shanghai consumers were the most sophisticated group in China, so many consumer-facing products often chose Shanghai to open their first store in China. 

Shanghai is also the largest city in China, with a population of around 25 million people,  and its GDP per capita is probably more than twice that of the national average (GDP per capita in China is about US$11-12k). 

Shanghai itself is surrounded by a group of cities, what we call the Yangtze River Delta, or historically what we called the Baoyou Qu（包邮区）, free shipping area, which includes Shanghai, Jiangsu, and Zhejiang provinces. The whole river Delta has a population of 227 million people, and is the most advanced region in China. 

So Shanghai and the nearby provinces together is already a huge, united market for many consumer-facing applications. As such, companies usually test out their business models with consumers from Shanghai (and its surrounding provinces), and once it proves to work, they tell investors the whole of China works this way. 

And of course it helps that these provinces are already united, everyone speaks the same language, everyone using the same logistic network. 

[00:19:24] 

The development of the infrastructure has been very important in pushing the growth of e-commerce in China. How do you think the infrastructure in China has developed? Do you think it is more advanced in Shanghai and its surrounding areas, or do you think the infrastructure across China is the same?

And how has this infrastructure evolved to support sectors like food delivery, which seems to operate very differently compared to other countries? 

Freeman:

Currently, logistics is definitely faster for the top-tier cities, but overall for the whole China, no matter the extent it can reach and also delivery speed, I think both are very satisfactory.

If we are talking about infrastructure, or the role of infrastructure to the Chinese consumer tech industry, let’s start from the ecommerce companies. We all know e-commerce relies on two factors, one is logistics, the other is payment. But if you look deeper, logistics relies on, first, expressways, and second, trucks and drivers. 

Do you know when expressways in China were made widely available? In 2000, 25 years ago. Back then,the accumulated distance of Chinese expressways was already only second to that of the U.S. All the delivery, express logistic companies such as SF Express, was founded also around that time. And later on, in 2003, Taobao started, and in 2005 JD.com launched. 

So China’s ecommerce evolution is basically, first you have expressways built by the government. Second, you have the private sector building the logistics companies, then you have ecommerce companies. 

But when I came to Singapore, I realised that the Southeast Asian ecosystem development is actually the opposite. I noticed that Grab and Gojek were founded in 2010 or 2012, but then you have, J&T Express founded in 2015. And even now, if you go to Indonesia or the Philippines, maybe you won’t find many expressways there yet. 

If we talk about infrastructure for food delivery, I would say the labour force could also be regarded as infrastructure. China has a huge supply of so-called blue-collar labour force in big cities including food delivery riders, waitresses or construction workers. 

But in Singapore, I noticed for ride-hailing services such as Grab, if you want to be a driver, you have to be a Singapore citizen or think of a PR (Permanent Resident). Singapore is a very small country and has very strict regulation regarding foreign labourers working in Singapore. But China is a huge country. with an unlimited supply of labour force, so I think that’s a huge factor to a lot of labour-intensive industries, especially food delivery.

Besides the huge labour force, another reason for the high penetration of food delivery in China comes back to the very fierce battle between different companies which were backed by venture capitalists. More than 10 years ago from 2010 to 2015, investors invested huge amounts into food delivery companies, and so to compete with each other, they spent a lot in subsidies for the consumers. That’s also why, from the consumer point of view, food delivery becomes very cheap and affordable. 

Meanwhile, I think there’s a trend that urban professional workers have become busier (and lazier). Office workers want to save time by ordering food delivery instead of going out, and so the supply and demand complement each other. 

But the battle is not just about food delivery. Actually, the battle is on four fronts, food delivery is just one of them. The other three are group buy, movie tickets, and hotel booking. At that time, as a start up, Meituan was fighting on these four fronts.

In fact from 2010 to 2015, before Meituan merged with Dianping, they were actually competing on one of the forefronts – group buy.

[00:28:19]

What is Dianping? Is Dianping a platform that allows people to leave reviews at dine in restaurants, like Yelp?

Freeman: 

Dianping, founded in 2003, started as a user-generated content website for in-store dining. Dianping was the first kind of consumer review website in China, and for the whole World (as it was founded earlier than Yelp). 

After 6 years, in 2009, Dianping already became profitable as a whole company and even planned to IPO. By the way, Dianping was the first investment case for Sequoia Capital China; they invested into series A for Dianping, I think in 2005. 

[Additional context: Dianping became profitable in 2009, that was the start of the so-called mobile internet. The first generation of iPhone was released in 2007, the first Android phone was released in 2008. At that time, the biggest story in tech was actually Groupon. 

Groupon was founded in Chicago, I think around 2008, and in 2012, Groupon went IPO. It became the biggest IPO since Google’s float in 2004. So you can imagine, around 2010, entrepreneurs in China were crazy about the idea of group buying. 

There was this thing, essentially they call it the “War of a Thousand Group Buys.”. There were like hundreds of group buys companies in China because the barrier of entry is low. So once Groupon entered China, a bunch of companies like Meituan and Dianping also started doing it.] 

Anyway, Dianping’s business is a search engine for in-store dining and because of that, Dianping essentially is a user-driven information community, and it makes money through advertising fees from merchants – it’s an advertising business model.

As a user review platform, for Dianping to open in a new city, you have to accumulate enough user reviews, so it takes a lot of time for Dianping to open a new city. By 2009, Dianping was only available in six cities in China, and its target users were middle to high level consumers in the topmost cities, in the city center area. 

[Additional context: It took Dianping a long time to expand as it can only slowly enter a new city one by one, this is very different from group buy companies (which Dianping tried to do as well), as group buy companies only needed one active deal to be able to launch a city.] 

After four years, in 2013, Dianping invested in Ele.me. In 2014. Dianping’s strategy at that time was “I don’t want to do food delivery by myself.”  So they invested in the number one food delivery company then, which was Ele.ma. Meituan’s food delivery was a far leg behind.

[Additional Context: Meituan started as a group buy company and pivoted into food delivery. For more insights on Meituan, check out our “Meituan’s business clarity” case study.] 

[00:34:37]

It’s interesting you mentioned that Dianping initially started with targeting affluent customers.

We know that incumbent ecommerce platforms like MercadoLibre and Allegro usually focused on higher-value customers to grow average order size, whereas emerging Chinese companies like Pinduoduo, Temu, and Shopee prioritised the mass-market to scale first, then segment premium users. 

Why do you think this ‘mass-first’ strategy has become dominant, even though earlier Chinese players (like Dianping) initially targeted affluent customers?

Freeman: 

Even in large cities like Shanghai and Beijing, if you only look at the affluent user base, they are mostly in the city center area, which is maybe only 10%t of the size of the whole city. If you go to the suburban area of Shanghai, the consumer behavior is quite different—it’s more similar to that of lower-tier cities in terms of population or user behavior. 

In China, you have tier one, tier two cities, but in these cities you also have the city center and the suburbs, then you have even lower tier cities.

I think Meituan and Pinduoduo both started from the so called mass market user segment, while the other internet companies in China, like Dianping, kind of started with the urban residents in the top tier cities. Now, after more than 20 years, Dianping’s daily active user base is only about a little bit more than 10 million, whereas Meituan‘s monthly active users is at least 300-400 million. 

[00:39:37]

Can you elaborate more on the concept of high vs low frequency use cases, and why this mindset is essential for local services platforms such as Meituan and Dianping?

Freeman: 

People in China use Dianping very often, when they are finding places to eat, or for anything – even taking wedding photos. When consumers want to find a good wedding photo studio, they will search on Dianping.  

On this part I want to talk more about the concept of high frequency versus low frequency in local services, this refers to the frequency at which consumers will use a certain local service. So on one end, food delivery probably has the highest frequency, you can order food delivery every day. Then you come to in-store dining, you will probably dine in maybe every other day. Further down the spectrum, you have beauty services, like hair salons or massage parlours, you probably cut your hair or get a massage once a month, or once every few months. On the other end of the spectrum, you have low frequency services like taking wedding photos. For wedding photos, even if you get divorced and remarry,you will not go to the same photo studio with your new wife right? 

So what does that mean for merchants? For a wedding photo studio, this means it has no retaining customer at all; it has to acquire new customers. And because there’s no retaining customers, there’s no such thing as customer relationship management. 

This similar logic could also apply to the home decoration industry. If you are a home decoration consulting company, you have to constantly acquire new customers, there’s almost no retaining customer. There is a customer referral, but there’s no retaining customers. 

For the high frequency user behaviour sector, such as food delivery, the margins are very low for merchants. But on the other end, for wedding, home decoration, or even education and training companies, they are low frequency for users, but the margins for merchants are very high. 

This means that as an internet platform, such as Dianping or Meituan, you have to adopt a different business model, a different revenue stream for these different sectors. For food delivery, you can take commission from each delivery order because it’s low margin but high frequency for consumers. But for wedding photo studios, you cannot take commission. Why? Because the margin is so high and the price per order is also very high, thus the merchant will not be willing to share commission with the platform, the merchant would rather give a discount to the consumer. 

For example, a young couple finds a wedding photo studio through Dianping, and goes to the studio. The studio will tell the young couple, don’t say that you came from Dianping (i.e. don’t close the loop on the platform) and I will give you a 10% discount. Because if the studio doesn’t give the couple a 10% discount, they have to give that 10% discount as a referral fee or advertisement fee to the platform. The studio would rather give that discount to consumers instead of paying the platform. Basically, this means that for low frequency but high margin verticals, it’s very hard for the platform to use a commission based model. They can only do an advertising model. 

So that’s the two ends of the spectrum, but there are a lot of verticals in between. The platform has to adopt a kind of a mixed business model for different verticals, i.e. a mix of commission fee and advertising fee. This kind of mindset is a key matter to understand the local services tech industry in China, especially the Meituan Dianping company. 

[00:46:16] 

Initially, when people were trying new models, they probably didn’t think about high frequency, low frequency use cases, how did people discover this framework? How did this mindset of low frequency and high frequency get built?

Freeman: 

I don’t know, but if you look at the Meituan Dianping merger, looking at just the food delivery versus in-store dining, it’s actually also high frequency versus low frequency, right?

Food delivery is the high volume and traffic sector, and in-store dining is a lower frequency use case. So during the merger, we can say the Meituan food delivery app brought a lot of traffic to Dianping’s app too. 

[Additional context by Jianggan: When we talk to executives for the Internet from China, there are the concepts,the traffic, the frequency, and the operations. These are the three important concepts that you don’t really hear from executives in other markets, but in China it is what everyone talks about – how do you acquire customers? Customer acquisition cost versus lifetime value; how do you acquire customers at a low cost? How do you get the lifetime value of the customers?] 

[00:48:26] 

Do you consider Meituan a super app? Why do you think Chinese super apps have not succeeded in expanding overseas? 

Freeman: 

To me, “superapp” is a buzzword invented by the tech community outside China, and it’s a popular concept overseas, but in the China tech industry, nobody talks about super apps. Honestly speaking, I think the only super app in China is WeChat. 

WeChat started as an instant messenger, then it added the WeChat moments (a feed of updates) becoming a social network. Later on, it added an important feature called “mini programmes” or “mini apps” which enabled a lot of companies to build a mini app inside of WeChat, instead of a native iOS or Android app. Mini apps were a huge innovation for the Chinese tech industry, and so right now, you can use WeChat to do anything. That’s why I say WeChat is the only superapp in China. 

But for Meituan, or even other popular apps in China, like Alipay or Douyin, I have heard people call them superapps, but in my opinion they are not. These apps are still only very strong in certain areas. For instance, Meituan is only very strong in the local service area, Douyin is just for short videos, and although Douyin has a rising ecommerce business, it’s still not that comparable to the other ecommerce giants. So in that sense, I don’t call them super apps; WeChat is the only super app to me. 

As for superapps going overseas, because China is huge, every top 10 or even top 30 apps, the user base is usually in the tens of millions if not hundreds of millions, right? That’s bigger than many countries.

Every popular app in China started from a very specific, or even very niche, use case, then expanded and built themselves as a platform. For example, as a mini app platform for others to build applications on top of that. I don’t think in the early days of WeChat they had the goal to build a super app.