Even in Tech, One Insight Can Rule Them All

1000 Groupons, 2 Winners

In 2010 - 2012, more than 4000 startups in China were competing to win in the same broad market. At the time, group-buying discount website Groupon was considered the hottest idea in the new Internet economy. So these 4000 startups all somehow developed themselves into clones of Groupon with delivery and/or discovery services. Many of them were funded by famous VCs. They copied each others' ideas and innovations rapidly. Most no doubt believed that they had what it took to win in this market. It turned out that only 2 did.

Why restaurant reviews were not enough

One of the winners of the 1000 Groupon War was Dianping, who discovered and solved a customer need that was not obvious to their competitors at the time.

Chinese cuisine restaurant kitchens are designed to be extremely versatile, and restaurants in China often have 300 - 400 dishes on their menus. So customers needed not just restaurant reviews, they wanted dish reviews so that they could order the best dishes at each restaurant.

Of course, helping customers know their best dishes turns out to be very good for restaurants too. Dianping was the first to discover this insight, and executed on it rapidly, and at scale. They solved the cold start problem by paying their own reviewers to visit restaurants, try multiple dishes and post dish reviews with photos.

How buying the most expensive advertising medium paid off

The other winner was Meituan, who discovered that the best way to acquire customers was to be listed on the home page of hao123 (the Craigslist or Yahoo equivalent of China – a manually curated website directory which influenced the choices of most internet users in that era.). They also discovered that being listed on the home page was very expensive due to the national audience of the website, and could only be justified by competing nationally in around 90 cities. The other justification for this was Meituan's realization that consumers in many of these smaller cities were now able to access hao123 and other services through Android smartphones.

At the time, most of their competitors chose to focus on the 30 big cities where most consumers were still using broadband PCs to connect to the Internet. Meituan's insight was to discover the advertising channel that would provide them with the widest possible awareness, and as a consequence they also chose to provide their services in the widest possible number of commercially feasible cities.

Meituan leveraged the scale of the hao123 channel to win top of mind awareness, and leveraged the growing scale of the mobile internet to expand their distribution and availability at the maximum viable scale. Meituan went on to horizontally scale their business to provide additional services: movie tickets, hotel and travel booking, grocery deliveries. This further increased their ability to pay top dollar to acquire users. As a result, many people now think of Meituan as a "super-app." But is that a fair description?

The One and Only Super-App

In 2010, the Chinese government prevailed upon Google to withdraw from the China market. This was the era when Android smartphones had been widely adopted and the Android OS had the highest market share in China. So Google’s withdrawal meant the loss to Chinese Android users of the Google Play store. They no longer had a channel that could curate safe and reliable apps for their smartphones. WeChat, which was launched in 2011, executed against this insight when it introduced its famous mini-app platform. To enable users to pay for some of the mini-apps or their features, WeChat introduced WePay, and then extended its usage to offline payments through QR codes. Thus was born the world’s first and only super-app - an app which is a platform for millions of other mini-apps.

Many others have tried to replicate this. Within China, there are apps that provide multiple features. There are also some that integrate mini-apps and payments, and so dub themselves super-apps. But most of their mini-apps can be thought of as features of their main apps. They are not substitutes for an app store. Only WeChat had that insight and plays that role at genuine scale. In the US, Facebook Messenger attempted a version of this strategy with Facebook Games. It was a dismal failure. Several tech startups in Southeast Asia attempted to build super-apps, starting with Uber-like transportation services, adding food delivery, payments and eventually as many as 20 other services including in-movie tickets, home beauty treatments, massages, laundry and grocery delivery. However, over ~90% of their usage remains within transportation and food delivery. Their payment systems are mostly used to pay for those two services, with minimal usage offline (except when driven by costly promotions and discounts). Most of their other services have either been shut down, or spun off into separate apps. It turned out that they didn't have any insight into their customers behaviour which would lead to a successful super-app.

A contrarian perspective on super-apps

Even today there is a strong view held by many firms that it is necessary and feasible to develop a super-app. Not just Grab and GoJek, but also AirAsia, the Tata group in India, several telcos, and too many banks to list here, claim to be doing that. In the light of the evidence, and in the absence of any insight, it is impossible that they will succeed in a way that provides a fair return on the billions of dollars of capital employed thus far in their attempts. Of course, given the incentive structures of the capital deployers and the capital users, it is nearly impossible for any of these firms to admit this.

Even in Tech, Insight is Essential

Why should anyone choose your product, service or brand instead of the competition? You usually have a good answer when you have an insight. A wise person once said that insight is something obvious that no one has seen (yet). After someone acts on it, it becomes obvious to everyone.

What Dianping, Meituan and WeChat have in common is that their success is built on insight, on seeing a path to success that others did not see, then executing to follow that path and create competitive advantage. Of course, they also needed to raise capital, build technology capabilities, and execute their strategies well. None of that is easy. But even for a well funded and highly capable tech startup, strategies that lack insight, no matter how well funded, no matter how great their technology prowess, are usually not defensible and will eventually fail.