Extra Buzz #17: Golden Week Grab Bag
Dear Extra Buzzers,
I took the last week off and enjoyed some peace and quiet on Southern California beaches and in the desert as part of my first vacation since covid19 began. It coincided with the mid-autumn festival and also the weeklong national holiday in China to celebrate the founding of the People’s Republic, which accounts for the relative dearth of news. To that end, this week’s letter will be a grab bag of “interesting things” that have caught our eye but don’t warrant a full podcast episode or newsletter issue.
What did warrant a full episode though was our recent show on e-commerce SaaS in China, one of our most requested topics ever, and something that is still very much still emerging (TL;DR: the GMV is miniscule compared to even any of the minor marketplaces, much less an Alibaba or JD). So do check it out here!
Two more housekeeping notes:
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Best,
Rui
1. Post-Covid Golden Week
October 2020 Golden Week crowds on the Great Wall per CNN.
As alluded to above, the weeklong holiday in celebration of the nation’s founding is one of the most hotly anticipated vacation periods of the year. In 2019, $90Bn was spent on domestic tourism. As the first extended holiday in China’s post-covid recovery, everyone was waiting to see what the numbers would show. The first four days brought in $46Bn, nearly a third lower than the same period last year, but still a significant improvement from May, the last major holiday. There is expected to be a commensurate drop in total trips made as well: ~800mm last year versus the ~600mm predicted this year. A few interesting facts:
Alibaba Fliggy data shows hotel order volume up 50% (L) and flight order volume on par (R) vs 2019.
More Fliggy data. Hotel prices down 30% (L) and flight tickets down 6% (R) vs. 2019.
Alibaba’s Fliggy platform showed* a 50% increase in hotel bookings from last year, but virtually no change in flights. This seems to be consistent with other platforms like Qunar who predicted a 10% increase in domestic air travel. The worst off are hotels, whose rates dropped 30% year-on-year, according to Fliggy. This is because …
Since international travel was unavailable, longer domestic trips that replaced them easily substituted the demand for in-country flights. However, domestic lodging, which supplies a greater variety of travelers, still saw a drop. That’s because although cross-province travel has resumed, there are still many folks who cannot or are highly discouraged from travel, such as students, teachers, and government employees. (The university students I work with are not allowed to step off campus without permission*, for example.) According to some boutique hoteliers, the bulk of their cancellations came from families with students who found out that they were not allowed to make long trips. And these were full-amount refunds since they were considered to be force majeure. But people still wanted to go places, so this meant …
Same-province (short distance) and local sightseeing became much more popular than in years past. In safer times, these would have been typically destinations reserved for shorter holidays. However, this year, it was estimated that more than 60% of trips are expected to be roadtrips, and the government forecasted slightly more traffic than last year (the horror!). Social media always goes wild at this time of year about the epic traffic jams, but it is very possible it truly is the worst ever. Makes sense given the comparative safety of the automobile than the rail, plane or other shared transportation!
Because of the shorter distances traveled and the complete obliteration of international travel (7mm trips last year), per capita spending is lower. Even if the well-heeled are ready to spend, there is an upper limit as to what local tourist traps can charge before customer complaints pour in, as some operators found out. However, at least one bright spot remains, and that is duty free shopping. WeChat reported more than double the number of users shopping duty free since May. Of course, this was all very clear months ago, when we did our first webinar on luxury retail in China with the Asia head of Stella McCartney.
Travelers are still extremely careful. Social distancing isn’t observed much given the density of the crowds but mask-wearing is. A recent “outbreak” of two asymptomatic imported cases in Yunnan (a large Chinese province in the southwest and a tourism hotspot), for example, really adversely affected businesses there. Covid is still very much on people’s minds, but big cities seem to feel pretty safe to most folks due to better infrastructure and hygiene.
2. Privatizations and Secondary Listings Continue
For those of you who don’t follow the markets as closely, this year saw the privatization of Jumei (which we wrote about on Extra Buzz), 58, Bitauto, and now Sina, owner of Weibo. As to secondary listings on the HKSE, the rumor that Bilibili is looking to raise up to $1.5Bn more received more wind this week. Of course, Alibaba, JD and Netease have already done so. Privatizations are easy, but only about 30 companies are eligible to dual list, at least under current regulations. Either way, many folks on both sides of the ocean point to the Luckin Coffee scandal earlier this year and the ensuing fallout as the core culprit for this exodus. Shortly thereafter, the U.S. government passed the “Holding Foreign Companies Accountable Act” demanding access to auditing Chinese company books, which the Chinese government has not allowed by reason of confidentiality. I have to say, I figured Luckin would leave a scar, but I wasn’t expecting such long term effects. All in all, there are two ways for Chinese companies to plan their exit, dual listings (or even tri-, when domestic markets are even more liberalized?) for those who qualify and privatizations for those who don’t.
The 30 Chinese companies eligible for dual listing as compiled by KrAsia in July 2020.
Specifically, Sina’s privatization saw a lot of headlines in China, much of it due to the fact that it was the first Chinese internet company to go public, and had been a staple on the NASDAQ for 20 years. Also because aside from Weibo, which it spun off in 2014, the company’s most exciting business is in internet finance, which is to say, facilitating loans over the internet, much like Ant, JD Digit, and every other Chinese internet company. Which is tangentially related to my next point …
3. Everyone is Trying Everything ...
Especially when it comes to entertainment + (e)commerce. Those have been the two sectors where I believe China internet actually leads, so it makes sense that this combo is becoming more and more salient.
“Copying what works” has always happened in Chinese internet companies, where once a winning strategy is identified, everyone rushes to apply it to everything, so it’s not a surprise, but still, some of these combos are pretty ... entertaining.
Blind Boxes + X.
Blind boxes are generally defined as when users purchase “an unknown product from a brand for a set price whether for the mystery, or for the chance at something worth much more.” It’s basically real-life “loot boxes,” for those of you who play games. The most famous example typically cited is POP Mart, a company that has thrived on selling collectible toys and is readying for an IPO. I’d really just call it gamification of the consumption experience, lessons evident to anyone familiar with game design, but still, a weird thing to see in the below combos: Xiaomi suitcase, Pringles chips, Wahaha water, and fresh food e-commerce*. In each of these, either you don’t know what you’re getting -- or you’re getting what you want plus something extra that might more than pay for the purchase itself.
Pringles blind boxes. Anyone tried these?
Livestreaming + X & Collaborations even!
Didi is the only remaining top Chinese internet company who has not put in a livestreaming function. Meituan was one of the last to adopt it earlier this year*. Right now it’s just for tourist spots and also education for its marketplace participants via Meituan University (which I explain below), but what’s interesting is that it also launched livestreaming efforts on ByteDance’s Douyin last month*. Wang Xing and Zhang Yiming are buddies of many years, of course, being from the same hometown and actually having worked together at Wang’s Twitter clone, Fanfou. So this collaboration has a good chance of survival. It especially makes sense given how much of conventional e-commerce is already dominated by Alibaba et al., and the relatively untapped opportunity of selling all those “local services” that Meituan has a leading position in. Meanwhile, other “partnerships” (really, just previously available channels) are fraying. Douyin just announced that external links will be banned, effectively trapping sales onto its own platform instead of allowing redirection to Alibaba et al.
4. ... In Silicon Valley, too?
It could be that I’m just starting to notice, but Silicon Valley companies are doing much the same. In the case of SV, however, the focus has been on Stories. Pinterest, LinkedIn, and even Google Search launched a Stories function in the past few weeks. As former VC and tech expert Eric Feng noted, every single one of the Top 8 social platforms in the US now has Stories. The main difference is that it took 7 years to happen (Snap launched Stories in October 2013), while in China it seems that whoever comes up with a winning feature can expect to get it copied much more quickly, and typically by a broader spectrum of players. I used to think that this was a nonsensical way of getting users to stick around on your app without regard for the user experience. Now I’m beginning to be more open-minded about it. If we were to generalize, “the Chinese way” is less about solving a specific problem with the utmost precision possible, and more about how to target a whole category of related experiences. Meituan, for example, is about solving all your “local services” needs. Instead of trying to optimize only for food delivery, for example, it wants to take care of everything you do when it comes to your leisure life outside of work. In other words, to a Chinese company, if a user has decided a specific action is important enough to open up your app to complete it, then there must be other things they can do for the user that naturally arise out of that action. And once you have a lot of traffic, as these top-tier internet assets do, then it’s all about how to keep them with you. Every minute not spent with you, as it were, is not just lost to you, but gained by your competitor.
Can you name all of the Chinese apps that have put in livestreaming functionality? From L to R: Alipay, ele.me, Koubei, Meituan, Meituan Food Delivery, Dianping.
Chinese internet giants will therefore try to cram in as much as they can, sometimes to disastrous effect, but sometimes (more and more?) in a logical way. When everyone is constantly sharing (and creating), then platforms to do that could and probably should exist everywhere. Or if not everywhere, at least in more places. This is why China’s Yelp, Dianping, has a Kuaishou-like feed and showcases livestreams. (And it’s even one of the slower-moving companies, too, deteriorating ever since being subsumed by Meituan a few years back!) It’s also why even though I chuckled at the launch of Meituan University, an edtech platform inside of Meituan for workers and merchants teaching them about digitization, maybe the concept isn’t so insane after all. Where do new business owners spend their time anyway, if not learning about their competitors on their sector’s most used platform? Now, it still seems to have a pretty small audience and I wouldn’t use it as an example of a successful “product expansion,” but hey, it’s not really that much weirder than any of the new launches recently. More importantly though, I’m more and more of the opinion that this is how every platform will try to “grow.“ Have a lot of traffic? Make it a content platform! (Only half facetious here.) Someone always is, after all, trying to share / sell something to someone else.
So what do you think, maybe I should make some LinkedIn Stories after all? Follow Tech Buzz on LinkedIn to find out!