Why did Shopee manage to overtake Lazada in a blink of an eye?

Alex  00:05

When I was at Shopee, I believe the first market they launch was Thailand. And I was there for that launch, which was to me was a very, very insane because when I first launched Zalora, it took us maybe like, maybe six months to get to 3000 orders.

But when Shopee launched inThailand, and the first day, first day itself, they’re doing 3000 orders, right? So and then now that’s when you want to talk about second mover, advantage, secondary effects and all these kind of things. 

So that’s that’s kind of the context where rocket kind of came in, spent the money built the infrastructure.

Welcome, viewers, welcome listeners to Momentum Works, answering the why series. Today I am Alex, I will be your host. Typically, I’m the host of EOA entrepreneurs of Asia, a podcast platform that talks to founders, investors and entrepreneurs.

But I’m here today with Momentum Works good friends, they have a new content series, they have quite a few interesting products that they are introducing. And this is one of them. I’m most excited about because I’ve been doing content for a while. And you know, I think for my platform, it’s complimentary.

And for the name, I guess, answering the why. Right. I think that’s a very important question, especially for the southeast Asia tech scene. You know, in my experience, building ventures and and what Jianggan has been doing, and what Alfonso has been seeing, right, you know, it’s a key skill that founders need to have.

Why, you know, this is something entrepreneurs will always ask themselves to figure out root cause, analyse, introspect and develop. And this applies to the broader themes that we’re seeing in Southeast Asia, why Southeast Asia?

Why the trends, why the news, why the concepts, leadership, etc. So the general idea of the concept and format that we’re developing is, you know, we’re going to introduce a topic and a theme, maybe have a thesis about it.

Momentum Works has a really great product on reports that Alfonso has been developing, which we hope to use as, you know, extra information, and to help enrich the conversation and dialogue. And then we’ll have a few questions to discuss, to discuss around it and try to keep it as concise as possible for everyone to learn and hopefully positively impact the community. What do you guys think is about right?

 

Alfonso  02:14

Oh, yeah, very interesting.

 

Alex  02:17

Anything I missed that you might want to add in?

 

Jianggan  02:20

I think I think I’ve captured everything so great. And so sort of So, of course, we have been we’ve been blogging have been sort of sort of mechanism community groups. And to a certain extent that some sounds some people think that we’re a media company, although we spend most of our times of good images and sometimes consulted by other companies. Yeah, so so.

So I think I think over the past few years, thanks, thanks to the extraordinary situation we are in so we have been managing to, um, to actually sit down and think about it, think about a sector think about what we have seen or what we have done in the past few years.

And also come up with the few fair systematic assessments that Alphonse has been leading so so so hopefully, that self insights will be useful for you to think about what you do and what are you investing and where you spend your resources on?

 

Alex  03:14

Yeah, so I mean, we’re sitting at the centre of all these intersecting communities. And what Momentum Works has done is really great, you know, in terms of the reports, which I think Alfonso can highlight in a little bit, the blog, which is more of more recent news, concise happenings that are very relevant.

And the community which is now you are building an actually an app in a platform called Impulso, which is what Spanish for momentum has been developed in beta. And I would welcome everyone to visit all these products and to continue with this series. And for today’s guests, and I guess, I hope I could be, you know, a regular guests going forward on this and Jangan maybe you could spend like 10 seconds, 15 seconds, you know, what are, you know, who you are in what you’re doing, and why are you here in central? Alfonso?

 

Jianggan  03:56

Oh, I’m Jangan and our losses? Yes, yes. in Southeast Asia since the 2013 years, 70 years, two solid days, where you have to literally give your users the smartphones for them to use smartphones, to the day that that I think, I think I mean, I’m in Singapore, and this year after COVID you see, like, can people start everybody’s scan using QR code and electronic payment is really prevalent.

But but but I I I, used to work with Alex in a few few inches across the region. We remember the days when, when when things were really different from what we see today and that things have evolved a lot and and of course, there’s lots of bullish sentiment about about the region. But of course, I mean, coming from the Bureau of background ourselves, so so we always want to look at the market as it is because because we need to actually do the work right and and we need to avoid being overly overly optimistic for things.

But we also need to avoid the old the pessimistic and and we need to seize the right opportunities at the right time. So, so Alfonso has been a observer of the of many things for the last few years. And he’s from Chile. So so also, I think, something you guys might not know that I think should enter Singapore and only two countries, which historically didn’t feel enough quota for the migration to the US, which were Alex is wrong?

 

Alex  05:37

Yes. So I think, well, the most important part I think, is Jianggan is the CEO of Momentum Works. And then he’s he’s leading the whole effort here, I’ll fund so as a part of the team. And then yes, I think the point is very international. And I hope in a future series, there’ll be more international guests more international topics that are tying back in related to Southeast Asia’s in general, and Alfonso, who are you and why are you here?

 

Alfonso  06:01

Well, my name is Alfonso I work in Momentum Works as the Head of Insights. Basically, my role here is to make sense of, of data and to basically to produce amazing insights, try to digest a bit all of this complexity of data that we have, and to try to create trends to make sense of the companies the data and how they relate with the macroeconomics and all that. So it’s, it’s a complex thing, but it’s very, very interesting.

 

Alex 06:31

Basically, a very important person that I think people should be connecting with you You’re at the intersection, and you’re looking at things analysing kind of like a Ben Thompson of Southeast Asia, I guess, hopefully, we can we can get you up to that to that level and spotlight and, you know, people start looking at your analysis and your reports and looking at this content and series more seriously, right?

 

Alfonso  06:50

Oh, yeah. Yeah. But I think that they’ve been done Ben Thompson reference is for JIanggan, not for me. And that is creating data and insights

 

Alex  06:59

Together as a team, right? Yeah. Okay, so let’s let’s dive right in. So very quickly, last week, for the last two episodes, there were some content covered. Can we concisely say in a minute or so? What was the main impact? What, what are the main takeaways? And some of the quick lessons that you guys talked about? And how does it kind of connect into today’s topic? I guess.

 

Jianggan  07:21

Let me take a step first. And so what we’re looking at, I think one of the major things which happened this month was the shelf IPO of Ant Financial, which was supposed to be the biggest in history, I think. It was even bigger than Saudi Aramco.

Um, but but it was stopped last minute. And, of course, that sends shockwaves across the financial market, but but it also made people think, Okay, what, what made this company what it is today? And, and what are the sort of lessons that we can learn from this journey?

But also, what are lessons we can as investors, as regulators, as startup players, what are the things that we try to replicate? What are things we should avoid? So?

So so so i think i think Alfonso also gave some very, very nice pointers about in terms of infrastructure in terms of connectivity in terms of human capital, where we are in Southeast Asia. So maybe, Alfonso, you can just elaborate a little bit on that.

 

Alfonso  08:17

Yeah, so. And the idea was to understand a bit what is the context in Southeast Asia and also try to understand why there is this kind of big boom in terms of investing in Southeast Asia. Because everything seems to be growing very fast, like you have the internet penetration growing fast, you will have a smartphone penetration also grown both fast. And also GDP is growing very fast.

Basically, do you start to question why it is happening. So this is why certain features like the chosen one or later, and some of those questions can be answered in a positive way. But in some cases, basically, we like the region is still not developed enough in order to sustain some sort of products.

So we have like different kind of very sophisticated products around offering services, digital services, and in some cases, people wonder why this company is successful, or why this company failed. So basically, that’s why we try to we try to understand and in the case of, of Alibaba, I think that he was very interested to understand what is the role of the regulations, and basically, how Alibaba basically provided financials basically needed to cooperate with the regulators in order to in order to actually prove what improve the regulatory environment of the of the country itself. So it was it was a very interesting conversation.

 

Alex  09:47

Yeah, definitely sounds like very broad, technical complex topics, so very hard to tackle impactfully within a short time period. So I think you know, what we could do is point back you know, if you look in the description, See the links popping up, you know, you could just, wherever here or somewhere, you know, we could go back and watch those episodes, I think they’re, you know, will be worthwhile at your time, if you’re interested in the space and some of those topics, you know, like, you know, infrastructure that’s not there.

But then there’s some very advanced structure, and then the nature of the markets and how things turn out is very relevant. If you want to look globally these days. You know, I think people are always talking about looking inwards now. But I don’t know, I think when things bounce back with the vaccine, and the economy happens, this these kind of questions and the why Southeast Asia, and you know, why Alibaba, and all these kind of things are going to be very relevant, especially if you want to invest in scale, or building reach into one of the largest, fastest growing markets in the world. That’s very exciting.

Right. And so for today’s topic, I could maybe bring up some of the questions we’re going to be looking at, but the topic is, let me see, How did Shopee overtake Lazada in such a short span of time, a very loaded question. So I’m very interested to get into this.

And then let me bring up the actual questions that will guide us we may not, we may or may not get to these questions, but we’re definitely going to be addressing a lot of them. Yeah, there we go. So why do you say that Shopee has overtaken was out? I think that’s the most important question.

I think that’s gonna set the tone for the thesis, I think, you know, to understand, you know, so that it’s not loaded know, what data are we looking at? What metric are we looking at? You know, how can we confidently say that Shopee has overtaken Lazada? And what kind of way because, you know, I could definitely talk to a few of my lasagna friends, and they’ll definitely make the other argument the other way. So I’d be very curious to see what Jianggan has to say about that.

Why did garena start Shopee when there was already Lazada? You know, basically, it’s a very interesting, broader question and more like, why should any competitor start if there’s a big entrenched guy that’s already monopolising? What did they see? I guess we could talk more about that. Shopee success? Wasn’t that obvious at the point of the IPO? Another loaded question? You know, I’m not too sure.

At that point. I think a lot of lists a lot of people that I knew, really thought shopping was already like a done deal, and they were going to overtake them. So I think another interesting question that could guide us and the last question, hindsight bias, about Shopee being successful, of course, right. So what can you know, potential investors or even even builders or founders learn? And where to identify the next Shopee? Right, so, without further ado, john, why don’t you just start off by giving us the thesis? No, can you prove to us that Shopee has overtaken Lazada?

 

Jianggan  12:26

So, Alex, I I think while I speak, I might ask your questions. Because Because you, you, you you you’re involved in one of the earliest efforts ecommerce in Southeast Asia so but 

 

Alex 12:28

Shopee as well.

 

Jianggan  12:41

To a certain extent, yes. Or to death as well. Yeah. Um, we, I have for those who are not familiar with the with ecommerce in Southeast Asia and Shopee and Lazada are two of the major platforms and spending spending across the region, or the major markets. Lazada started a bit earlier, I think in 2012, incubated by rocket internet, brought investors and Temasek as well.

So 2016 was acquired by Alibaba, who started this this transformation and with with technology coming in with people coming in with the seller base with the experience, etc, etc. Shopee itself was started in 20..2015. And, and any initially I think he made it big in Taiwan.

Then we’re going to have the large, large user base, and also the it’s getting kind of interesting. And then they afterwards they then went to Indonesia, they got super big Indonesia, and many people have been questioning, okay, is the business models sustainable? Because they’re subsidising a lot in the free shipping etc, etc.

And, and for friends, especially our friends, you compare the two platforms that you sort of see the difference, right, and shopping looks very lively. Or some people call it like, low class. So it’s, um, it’s not as classy, it’s not as clean. It’s not as heavy compared to other. So okay, so- compared to Lazada.

 

Alex  14:13

are you saying this is like from Singapore users? Or were you hearing this from

 

Jianggan  14:17

other users around us? Right? I mean, are sort of decently well educated, have good jobs and middle class and above?

 

Alex  14:27

There’s some point there’s a point of contention, at least for the middle class in Malaysia of my circles, which could be a bubble, right? A lot of the mesh prefer Shopee. I mean, like, Look, man, you just unpacked a lot of things there. Right. So if I don’t know, I don’t know, do you guys want to talk about the context of the ecommerce at the beginning? So I have some thoughts there, or just want to talk about the actual comparison of Shopee and Lazada?

 

Jianggan  14:48

I think I think it’s useful to give some context because because we sit well on this topic and, and some of our users are familiar with what’s going on now. And but but I don’t think many many, many ways early days of forest voting techniques and, and appointed mentioned about, okay, the people who prefers Shopee this is actually interesting.

So I suspect, I mean, imagine countries China. And so, you know, there’s this platform called Pinduoduo, which grew really rapidly, I think the stock price, I think, grew by like three or 400% this year. Um, the interesting thing is that people are saying that, okay, you can do this for people quite far from small towns and rural, rural areas from sort of softer, like relatively, like lower income groups.

But the reality is that there are lots of people from the way educated the work of the wealthy groups, actually us into the lot, but funny, funny enough, when they discuss with their friends, they would refuse to admit that I think that’s something to do with them with this, like the East Asians, basically.

 

Alex  15:57

That’s a very, I mean, yeah, I mean, you’re gonna be more of the expert in terms of Chinese China, what’s happening in terms of that and and the behaviours, but that is very fascinating to hear. And I mean, that that that speaks to the broader discussion of ecommerce in Asia, and I’ve had this discussion with the ex CMO of Lazada, Malaysia, who was eventually the group as VP. And he he was discussing, you know, some of the broader trends of what’s happening.

And we talked about India and Amazon and you know, what’s going to happen in the future for for ecommerce and, you know, at least for the story of India, Amazon, they were doing really poorly against go kart early on. And then eventually, because Amazon just does what they do. They started taking over and dominating tier one cities. But at the same time, Flipkart was Flipkart, Flipkart. What then what then Flipkart lost market share and tier one, but they were still holding on to tier three.

But then I think that’s slowly even eating away as Amazon continues to grow the scale. And then, you know, we kind of made this other I guess you could say projection to Southeast Asia in terms of what Alibaba is going to do, what Shopee is going to do and where the future of ecommerce goes, that I could appoint you to also to the episode I did there, but I think that’s also interesting.

We could probably go with but but let’s let’s start with the context. Right, so 2000 end of 2011 when I first started this, the Zalora right, that was the first major ecommerce project that rocket brought outside of Germany, which was the Lando which was very successful within 18 months to got to 1 billion revenue.

Then they the Samer brothers decided to launch that in conic, Australia and jabong in India, right. So these were the big major ecommerce waves back then, and what our friends in our networks tell us that no VC was willing to spend $5 million on anything, right. And back then when we first entered the market, no one wanted to no one trusted putting a credit card online and payment systems were very janky.

And you know, you had to spend a huge amount of money, which only rocket probably could have brought and done to kind of inject the first capital of ecommerce. So Zalora launched first and then six months later on the heels of that Lazada launched, and there was a lot of early sharings. Because we use the same back end systems, we share the same processes, we share the same threepio contracts, we there was a lot of early synergies, you know, for six months or so from when they launched plus six months.

And then eventually got to be you know, very complicated because they started doing the fashion vertical, and there’s a lot of competition and been rocket being rocket, it was very aggressive. But the main point is that though, what I think what rocket understood and knew is that there was an arbitrage opportunity. And it has, they had to blitzscale in order to get the first mover advantage, right.

And I think they had done that really well and Lazada had more, at least from my viewpoint Lazada had more of this solving a pain point for more of a mass where you know people in the countryside couldn’t get a TV a refrigerator because they didn’t have a mall near them.

Where’s you know, fashion for the Zalora was more of this kind of luxury thing. You know, if they couldn’t afford it, they’d only wait for the discount, and they just go buy their clothes on offline. So really, you’re talking about people who are offline and online. And in other opportunities versus people actually need products.

And I think Lazada was able to one be more aggressive, eventually spend more money effectively get the market share. And on the heels of that, I guess, you know, then come Shopee, which I was actually so I’m not too sure about you probably I think you’re friends with people from Shopee better than me. And so you might get better insights there.

But when I was at Shopee I believe the first market they launched was Thailand. And I was there for that launch which was to me was a very, very insane because when I first launched the Zalora it took us maybe like maybe six months to get to 3000 orders but when Shopee launched Thailand and the first day first day itself they’re doing 3000 orders right. So then now that’s when you want to talk about second mover advantage secondary effects and all these kind of things. So that’s that’s kind of the context where rocket kind of came in, spent the money built the infrastructure, and the only reason why Shopee and I talked to the guys who are on the ground from rocket who joined Shopee.

They only believed something this big could happen because Garena was behind it right and Kareena made the name in gaming and forcely He was named to be reckoned with and a guy who knew could get it done. So a lot of these rocket guys from Lazada actually got behind it. And launched, I guess they already took the learnings from from Lazada, and then just basically injected it into Shopee. And they felt they kind of went with a different angle initially, you know, they were, they were more open marketplace, they were looking at fashion, at least Thailand very early on the bit, the fashion team was very big, they were looking at Instagram influencers. And then they got one niche, and then they built teams to other categories fast. And I guess, you know, if you wanna talk about context, that’s at least from what I know, and my experience,

 

Alfonso  20:38

I suppose that we can add additional points is that when this happened, like many, many things were increasing birth fast, like you had smartphone penetrations increasing very fast, you have also like things like tablets, and also laptops.

But I think that is one of the main differentiation differentiators of Shopee against Lazada is that they also use a strategy that was focusing on smartphones. So that is interesting, because in the case of Lazada, they were using smartphones, but also like, computers to hold up. Yeah,

 

Alex  21:12

that’s that’s a very good point. They they launched the product only on App first. And probably much later, after launch, they actually had the web client. So they were You’re right, their strategy was very different. And I think you’re right, the trends at the time were in their favour. And that’s, that’s when rideshare was taking off right after that was right after I think I had left easy taxi with Jianggan and fight for mobile apps that was everywhere. So that’s a very good point. Yeah,

 

Alfonso  21:38

And you know, I think that is even more important, because if you think in, if you think in the different possession of, of the digital devices in Southeast Asia, you will see that, like Southeast Asia, in the in the path of growth, basically, they they jumped from, from like mobile phones directly to smartphones.

And the penetration of PCs or laptops is very low. Basically, instead of having a high penetration of computers, they have as smart as high penetration of smartphones. So if you thinking Shopee, what they did, it is actually it makes a lot of sense. Because they did the research, and this is also one of the one of the one of the good things of entering late that you have additional information they realise about this, and they they saw that smartphones was higher integration, computers were very low.

 

Alex  22:31

Information and infrastructure, right? Even like logistics cost, like what like the whole wave. I mean, so after ecommerce was very big and Shopee was doing well, then, you know, this, just the secondary effects is that everyone started investing in logistics companies, and then you start getting all these type of I forget our friend Daniel, he did the rocket uncle, what’s the one that didn’t work out? But then then, you know, you have all the other rideshares that doing delivery now and last mile? And, you know, I think that’s a very good point.

And I’d be very curious to know, is there any data that you look that pointed to more of a core value proposition? Like, for example, like, why did the Zalora not get as big as Lazada? And then, you know, for example, then why did Lazada get those big? And why does Shopee then take over? Right? Is it because of this leap of smartphone penetration, you think, or anything about this,

 

Alfonso  23:20

this is a mix of different things, right? So for example, Jangan just entered a bit of the of the of the kind of website that they use the kind of app that they use. So one thing is the the positioning, right. So with the positioning of Shopee, they’re clearly targeting a different kind of target audience, right? They seems to be targeting like, more, like the average guy for Southeast Asia while in Lazada, they are targeting a different kind of, of people, right?

And it makes sense, because, for example, if you began if you started your business in Singapore, you may assume that the rest of the countries are going to operate in the same way and under same era right. Now, I think that that that is one thing. So you have the positioning, and you have the mobile boom, that is also another thing.

What, what else? So for example, I think that when Shopee actually started, they began not actually using a lot of promotions. So I think that that is that is our sauce. Also that makes sense, because when they started Lazada was already like increasing the level of promotions and all that.

So I think that that fits perfectly like a level of the level of salaries, basically the Southeast Asia task, so it is not so high. It’s not like Singapore. So you have like a minimum like the average, like a median disposable income in in Vietnam is like 500 per month, so it tends to be very low. So you basically you can wonder how you are going to be a like acquire different kind of digital services with that kind of salary.

 

Jianggan  24:59

Yeah, I think that there’s an interesting point here that that that people tend to make assumptions. And especially when you are required to do more things at a fast speed that sometimes they don’t, you don’t really do the sort of research or whatever. I mean, as far as you probably need to pretend to believe in, let me launch fast. And I’m going to delete the data from a test. And I’m going to just I mean, that’s, that’s the mantra of internet companies. Right.

And, and, and, of course, people are sort of, um, people, people tend to also like, look at I mean, the people around them. So what can customer profiles they are and stuff. And this would usually be the start a starting point. And, and I think you’ll probably see, like loss of loss of investor meetings where you basically say that, okay, this looks interesting, but I don’t think any of my friends will use it.

But But then the person types, you know, that I mean, investors and their friends are not representative, the message is correct. And let me let me give a, I think two examples. First, is that I mean, does this Chinese company do a short video on competitive Tiktok called Kuaishou, which is fighting for IPO in Hong Kong?

I remember back in 2016, when I was in Beijing, I was talking to a few investors. And, you know, what’s the message illustrate? Oh, there’s this app, which has 200 million users, and never heard of it. Like, nobody has ever heard of it, it had 200 million users. Why? Because all the users were in small towns, we were in the rural areas.

We Yeah, we were connected to the internet for the first time. And it was interesting that I mean, the Chinese New Year 2017, you know, loss of this, this is like an own fund managers, managers, and startup founders and key employees from Beijing from Shanghai and Shenzhen, go back to their hometown, which is more cities and stuff. They said, Wow, almost high school friends are in Kuaishou. Yeah. So that’s still shocking, because it’s so easy for you to miss the map. Yeah, the mass market.

 

Alex  27:04

And there’s a few important things there. Right. So it’s like, from an investor standpoint, it’s it’s those cognitive bias and mental models that you have to deploy to avoid that. And we could extend this further into the this the current discussion, which is, you know, of Shopee and Lazada. What was the secret that Shopee knew then that supposedly allowed them to take over? Right, because no Lazada knew the secret that, you know, they had to move fast and take the market, because no one else was good as a high barrier to entry. The Semler brothers kind of kind of pulled it off, and they were able to sell to alibaba alibaba is only once you probably could sustain it. And, you know, they’re very, for at least for Lazada, it’s a very multi decade exercise of creating value and building the ecosystem. Right.

And, and, you know, even I would suspect that even Alibaba would argue, you know, let Lazada Shopee do well, because that’s only going to benefit Lazada, too, as well, you know, and, you know, we’re talking about, in theory, a user, you know, a broad market of 600 million people that’s going, you know, of course, the total addressable market will be growing over time out of that 600 million, it’s not totally that now, and, and then a big part of that probably could be a real strategy even right. So, what do you guys think? Is there any element? No.

So I think first, we should probably set the stage, you know, has Shopee taken over Lazada? And is that is there a secret that you know, that that that would Jianggan talked about rural China does that apply to rural Philippines, rural Indonesia, rural Vietnam, that ecommerce can further grow into and my instinct says, you know, we’re barely seeing a tip at the beginning of ecommerce, this is just, you know, entering the third chapter four chapter of many chapters to come. So So what do you think so how Shopee taking over Lazada? And then can we talk further about strategy?

 

Jianggan  28:46

Well, I think the first question is that and I do speak, speak with some friends who are working as a stock analyst in firms in the US and if you remember the the share price of Sea Group which is the parent company in Shopee for I mean, they went IPO in 2017. And for about three years, it barely moved.

It barely moved to a certain extent that lots of early employee they said okay, this hasn’t worked for for almost two years it’s never going to move let me sell it and of course, that was before you rose bought 15 times the last year and a half. Um, I mean, who knows right? I mean, you can say some mistake but people rarely say that okay. Lazada back to Alibaba. almost unlimited firepower cannot be fired in case of a fight, fight fight against it effectively.

And besides I mean, Shopee is losing money. And I think even last quarter resources shows that losses widen. So and of course as Alibaba is a profitable companies and is able to subsidise the choices. I think I think they invested like almost two A few hundred million dollars in Redmart, which is part of that grocery delivery service in Singapore alone and let that London, the bigger group and other countries. But but but but but I want to talk to this equity analyst and I think there’s a shift of sentiment this year. And people start to believe that okay, Shopee is ahead. And his biggest companies, this is the biggest ecommerce company in Southeast Asia in terms of gmv in terms of visits in terms of downloads of their mobile apps, in terms of basically the, the measures we can think about right, and so Okay, so that, but I don’t think there’s any.

 

Alex  30:39

Okay, I see what you’re saying.

 

Jianggan  30:41

Yeah, but the question is that, is this sustainable? I think that’s that.

 

Alex  30:45

I mean, I think you’re talking to people who are looking at things backwards, historically. 2020. Right. So of course, the Shopee has proven on a metrics level, which is the same thing, you know, is could can grab even be sustainable to do something that creates value, can they find a core value, prop and identity, etc, etc, right?

And it’s kind of silly, because the users on the ground would tell you that they just look at their behaviour, who did they use more Shopee or Lazada. And, at least for me, in the past few years that that shift has been huge shift shift to migration to Shopee, at least from at least my circles again, again, it could be a bubble, right?

So I guess, I guess, I guess what you’re saying is like, if you’re to break down financials to financials, I think Shopee has to report azada? I don’t know if the report is under Alibaba numbers, then then you could see that then probably Shopee is for sure bigger. And you’re talking from financial metrics from analysts metrics, this kind of stuff. So So I guess, on that point, we can’t say that it’s not. But then it’s more of a question of, you know, is it real? And is this sustainable? Right. Alfonso what do you think?

 

Alfonso  31:56

Well, I’m gonna try to answer your second question, a secret. But well, I don’t know if this is the secret, but I think that is, is because they aim the population correctly, they aim the target audience in a better way. For example, promotions work in Southeast Asia

So why those those promotions work in Asia, because what people like the average salary is not that high. And also, for example, if you think in terms of what is the kind of products that are sold in, in Shopee versus Lazada, you will see that in Shopee actually, the variety of products that they have, like the selection tends to be lower end products, basically, it’s not high electronic products, that tends to be much more expensive.

So obviously, the margins are going to be lower, but they’re going to actually be able to pull up higher number of transactions. And in the case of Lazada, is the opposite. opposite thing. They’re concentrated in basically quality over over quantity. So that is also something interesting.

And the other thing is basically how should be approaching the target audience. And I think that they have been able to create, like different versions of, of rap, in order to adapt it, to localise it to the different countries. So I think that that is very interesting, especially considering that in countries like Indonesia, there are like 700 different ethnic groups, or you have like, like, the intensity of Asia, for example, there is no dominant religion on all that. So I think that all of these points, the region of Asia is so diversified that you need to approach it not with a no with just want to know,

 

Alex 33:43

multiple things in order it’s not one Asian

 

Alfonso  33:45

to do it. So is the secret. What is the secret? I think that is the secret is to understand better the target audience, localise basically, to provide lower end products, basically, a cheaper product, I think that is one of the that is that is basically the solution.

And they managed to do that basically by selecting products that are not going to be like the most sophisticated ones. And I’m not saying that they did or didn’t sell this stuff. I’m saying just that the selection of products that they choose is in categories that are not so expensive, such as high tech, electronics and all that. So that is one of the reasons.

 

Alex  34:23

I would only caution against the the comment about discounts I think discounting is a massive strategy that’s been employed by rocket internet from day one. And I would argue that if rocket internet had been comfortable with setting on a smaller valuation and not trying to make themselves so rich, been less aggressive on a discount and accept a smaller market. You know, we’re looking at a very different ecommerce behaviour and different kinds of scenes that we’re seeing today. Right?

I think that and because it’s like you said, this is still sustainable, and still a very big, big question needs to be answered. And I think Rocket has done has made everyone addicted to, you know, discounts. And to be honest, that culture is literally the same thing from Shopee. Shopee was started from rocket guys, it’s literally the same company, but on steroids, but a different flavour. Very similar culture when it was started when I was very, very aggressive, quite quite political early on, and all these kind of things. And that’s beside the point. But I think the point is, like, you know.

I think, you know, from Lazada, Shopee, the whole discount thing is a continuation that we have trained as users to expect, right. And I think what happened is, you know, both players, suppliers, and everyone’s getting more, you know, savvy about this, when big discounts come along, you know, 1111 1212 112, whatever, right.

Prices tend to be jacked up before and then at least for the things that I’m shopping for, there’s not much of a discount that you’re seeing, you know, unless it’s like four categories that, you know, people are trying to move stock where they don’t need anymore, something else is in season. Right. So I’ll tell you other points, though, I think they’re very valid. I think it makes sense. And what you’re basically speaking to the success of ecommerce in general, and I think why Shopee has probably done massively better was assortment, right.

And I’d been a very, I was not been a big shopper in ecommerce for a few years ago, but the past year, heavily using both Amazon, Lazada and Shopee and she was out of shoppi. And one thing shopping has getting right is the assortment they have they just have to cover more products, even more esoteric things than Lazada. And arguably, in those categories that are critical, where they have the advantage of assortment, the prices are lower than Lazada.

Where Lazada is winning, for me, at least from a consumers perspective is that they have a better product and operations. So if I’m to order on Lazada, it comes to me much faster than Shopee. The Shopee is not slow, by any means, you know, within a few days is great five days a week. But we’re talking as odd as next day, one day two days more consistently or not. And I think that ties to supplier supplier problems. The catalogue is not as good as Shopee.

And I think you know, why they could probably take over more is probably better prices, like you’re saying, right. And I think that’s that’s probably part of the secret that they just have executed probably better because everyone knows how ecommerce works in this day and age, it’s just a matter of getting the right funding and store behind it and proving the numbers which they kind of done, as Jianggan mentioned.

 

Alfonso  37:23

Right, right. Exactly. No junk. And

 

Alex  37:25

you want to add to that, or

 

Jianggan  37:27

I think I think strategy wise, I’m familiar with you. I’ll also mention that when you start later you have you had this information from these meetings. And you have people trying different things. And the buyers and sellers, I know we’re educated soon. And if the other player can’t occupy the whole market, then that still he hadn’t created that barrier that that that others come into and easily said that, okay, this market is purely, fully mature and as in some Western markets, that there’s some retailer with occupied, say, half of the housing commerce market lately. Of course, it’s difficult for for us to come in but but I do remember, there was discussion about Vietnam 70% market share, but but market is growing at like 100%, yours in the 70% could easily become correct 5% if you don’t catch the growth,

 

Alex  38:28

you know what? No, it’s very interesting, like when I was the part of the reason why I didn’t continue with Shafi was because I wanted to move to Vietnam. But the dynamics with Kareena that bit is their biggest market for gaming. And they have a very different structure and power structure for Vietnam. So even though me being Vietnamese American, I, I wasn’t allowed to kind of go there. So I kind of, you know, felt like, wow, this is kind of tough, you know, so but but you know that what you’re pointing to is a, you know, it’s very interesting fact that like Shopee still has room to grow further in such a fast growing market. And if was not careful, you know, they could they could lose their grip, which we have seen the same story over and over in different countries, right.

 

Jianggan  39:03

Yeah. And also, I think I also did this and did this illustration, but population density region, which, which is something that we talked about before, but it’s something that I think I think it’s worth taking a look again and again, again, so so when people think about a strategy you Where are the consumers, and also we can explain more about that.

But But, but but last chunk of consumers are in a few bulk of your policies. I mean, it’s very different from China. Plus the PC is very different from us classroom settings and address if you remember like for for tech CEO for very early days, you have city managers and implementing city managers. So on somebody in Southeast Asia, you have big cities, but other than that, it’s it’s tough, like large room, kids. Maybe more about it, you

 

Alfonso  39:57

know, just just to highlight that Yeah, the population density is an issue because the population is basically so unevenly distributed in the region, that basically that creates a connectivity issue within the countries. And so if you compare, for example, China that is highly connected, highly interconnected, basically, that kind of connection reduces the cost of communications of logistics and all that compared to 30 session on what are some of the consequences of this is that, for example, you will have 50% of the population still living in rural areas in Southeast Asia. And that’s basically half of the population. Now, so you heard you have like, just like, around 40% of the people is still working in the primary sector that is basically a extraction of natural resources, and things like that. So even if this has improved dramatically, this is the kind of issues that are still that the region still facing? No, no, yeah, definitely. 

 

Alex  41:02

So let’s, let’s do a quick recap of what we did cover. So I think the the thesis that we’re going off is, you know, you know, analysts and hard financial numbers Shopee has overtaking Lazada in terms of performance, right. And the question why, no, so what we talked about is possibly second mover advantages. We’ve talked about how there’s better assortment, possibly more aggressive pricing. And I think Alfonso alluded to this, I think the way they had localised and marketed. Like, I can’t get that stupid Sharpie song out of my head. And then pocket chart like, what’s the comedian Pikachu, whatever, you know, the Malaysian comedian, like, it’s just, yeah, I think they had done that better, which we didn’t really talk about. But I think that speaks to Alfonso his comment about how they understood localization better.

And, you know, we didn’t get to continue discussion about maybe how it extends to rural and the future of ecommerce, which might be another interesting topic to discuss in the future. But I think from what they did, you know, Trump’s strategy from marketing from pricing assortment. And where I don’t think they’re winning, at least my viewpoint is Lazada is doing better in terms of operations product even though product morph to be very Chinese not that good for my Western tastes, it’s still once you get it, it kind of works is better than Shopee.

So these are some of the reasons why probably shopping did better. And lastly, we did talk about you know, the hesitation of the IPO in 2017, where people sold shares and they didn’t think the shopping was going to take over but you know, I gave my view from ground up and we were seeing people from looking at down you know, analysing it. And you know, the point is, it’s not always very clear, right, you know, you have to look at all the factors be aware of your own biases to kind of make those calls if you’re trying to build something that’s already existing build something that’s better something that’s in hyper competitive, right so with that any any Is this about right do you think is there any closing remarks something I missed out or you want to add?

 

Alfonso  42:57

I think it’s okay. So we have to have the positioning we have the the targeting the focus on smartphones basically because they knew that the penetration of smartphones is higher than computers you have the delocalisation f4 that is highly compatible with the reality of Southeast Asia that is highly diversified you have a focus on promotions on lower and and kind of assortment of products so you have you can see how all of this fit together nicely with what’s going on with the vision itself with the macroeconomics while microenvironment factor So yeah, those I think that are the keys why a shop he basically is now leading

 

Alex  43:42

okay perfect Jianggan closing remarks

 

Jianggan  43:46

just one more thing I think Shopee does it does does it better with the with the female customers in terms of assortment because because I think I think of course all three of us are male but but I do believe that’s on salt. So assortments, see the data on that.

 

Jianggan  44:02

Consider that on that and but but also think about this the story that they have been telling, telling the technologies as well. So, so so so but of course it is difficult for us to capture the full picture of what exactly happened but but but what we did is that the pieces which might be useful in the way you assess market and your you, you view the different players and when planning resources

 

Alex  44:29

are found so perfect future report and analysis on female, female consumers in the ecommerce space and the power they hold. That will be a very interesting one. And I think what we’ll do is, you know, I think there are some related facts and reports and content that Momentum Works has created, we will link them below as well. So you know, definitely guys stay tuned to the discussion for the next part of the series.

Hopefully, I think I’ll continue more than eight parts, you know, I think or maybe one more participant or something else but you know, stay tuned. You know, Please comment and engage, you know, follow us. And we’ll be back for the next episode next week or some other time. Yeah.

 

Alfonso  45:06

Right. Thanks, guys.

 

Jianggan  45:10

Bye.

 

Yorlin 45:11

Bye. Bye. We have more coming. So stay tuned for the next episode.

So in the meantime, if you look on my right hand side, these are the these are the ways that you can connect with us and find out more about what we do. Find out more about the neighbour report. And you can also just contact anybody from Momentum Works to find out more. And if you want to find out more about what’s going on or understand what’s going on in our mind, go to our blog. So until next time, I’ll see you guys