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Wang Xing was 26 years old and already the founder of a failed Chinese takeoff of oncehot Friendster when he cloned Facebook. It was December 2005 in Beijing, and Wang and two friends had made an excellent copy. Xiaonei would quickly become the most trafficked Chinese version of Facebook, but less than a year in, forced to borrow money from his parents to keep it going, Wang sold his first success for several million dollars.

He and other friends next copied Twitter. Fanfou would become China’s highest-profile Twitter clone, but it was taken off line by the government after the Xinjiang riots of July 2009 and would not return for more than a year. Meanwhile Xiaonei flourished under its new owners and its new name, Renren; it will soon be valued at more than $4 billion in a highly anticipated U.S. IPO.

Undaunted, Wang and his Fanfou friends cloned again, launching Meituan, a copy of the crowd-discounting business Groupon, in March 2010. It is one of the two highest-grossing Chinese Groupon clones, with more than $12 million a month in coupon sales, Wang says, and is on the verge of closing a $50 million-plus round of funding with investors such as Sequoia.

In the April 15 'new economy 100 people' organized by the 'zero to the new economy 100 people 2017 CEO Summit', the US group commentary CEO is Wang Xing. Photo Courtesy weixinyidu.com.

In the April 15 ‘new economy 100 people’ organized by the ‘zero to the new economy 100 people 2017 CEO Summit’, the US group commentary CEO is Wang Xing. Photo Courtesy weixinyidu.com.

Meituan is Wang’s best chance to cash in big on a career of duplication. But to make it, ironically enough, he will first have to defeat an armada of fellow clones, an estimated 3,000 Chinese group-discounting businesses that have sprung up in just one year in cities all over the country, including up to a dozen strong national competitors.

The other leading clone, Lashou, just raised $111 million and spent $10 million on marketing in March–right as the original Groupon joined the scrum, in a richly funded joint venture, Gaopeng, with China’s largest social networking company, Tencent. Another competitor has, in classic Chinese fashion, grabbed some market share in part by cloning the domain name, Groupon.cn.

The war to become the “Groupon of China” has become an expensive arms race, turning Groupon’s enviable cashflow model inside out: The cash is flowing out to chase customers and personnel, and victory may yet be defined by who can bankrupt whom first. The intense competition has raised the cost of setting up sales teams in more than 100 cities, while cutting into the take that the clones can claim from each coupon sold for restaurant meals, movie tickets and the other services that are the bread and butter of crowd discounting. Meituan’s take is now down to a high single-digit percentage of each coupon sold, from 20% at first, Wang says, and the other competitors are taking under 10% as well (Groupon generally takes a 30% or higher slice in the U.S.).

Groupon, lined up behind the Samwer brothers (the leading European Web cloners), has fueled the arms race this year with Gaopeng. Oliver Samwer met in October with Wang and the other heads of the leading Groupon clones, and according to some of them, his message was arrogant, patronizing and warlike: Surrender (agree to be acquired) or be defeated. Conveniently for the clones, this caricature conforms to a well-worn stereotype of the marauding Western Internet giant marching into China, confident of victory, and failing: eBay, Yahoo! and Google all ultimately surrendered. But first Groupon is going on a hiring and marketing spree, raising the cost of doing business in a niche already employing tens of thousands.

Johannes Bruder, COO, Oliver Samwer, CEO, Peter Kimpel, CFO and Alexander. Photo Courtesy gruenderszene.de

Johannes Bruder, COO, Oliver Samwer, CEO, Peter Kimpel, CFO and Alexander. Photo Courtesy gruenderszene.de

Instead of surrendering, the clones have bumped up their advertising budgets. Lashou will spend at least $30 million this year. So will Groupon.cn, the popular dining site Dianping and Nuomi, the group-buying wing of Wang’s former Facebook clone, Renren, say China’s 21st Century Business Herald. Wang himself has a more modest, online-focused strategy that the Business Herald says will cost Meituan 130 million RMB, or $20 million. But he is still burning through $1 million in losses a month on about the same amount in revenues (Meituan’s take from $12 million in coupon sales).

The obvious near-term winners in all this are the advertising companies. The long-term prize for the clones might be lucrative, the gargantuan Chinese consumer market. Wang projects more than $30 million in monthly coupon sales for Meituan by December and claims that in five years his company could grow to 100 times its current size, which would mean $15 billion a year in coupons sold.

But it is unclear if the stand-alone group discounters will live by economies of scale or die by them. Wang is learning that cloning businesses is easy–far too easy in China–but cloning success is no sure thing.

Appropriately enough, Wang Xing is a programmer cut right from the mold. Slight of build, soft-spoken, bespectacled, a graduate from China’s MIT, Tsinghua University, who also studied in the U.S., he could be the CEO of any of hundreds of Chinese startups. Born in coastal Fujian Province in 1979, at the dawn of China’s reform and opening, Wang is also the son of a serial entrepreneur, a farmer who speculated in flowers, worked in construction, became a mining boss and finally got into cement.

In middle school in 1992 Wang took an interest in computers, working on, naturally, a clone of an Apple II computer. About a year later his parents bought him a clone of a PC. Most of the country had no access to the Internet yet, but in the mid-1990s he bought a modem and dialed long-distance to bulletin boards in Shenzhen and Guang – zhou run by men who would become Internet titans, among them Tencent’s Pony Ma.

It’s a tool, and it’s a toy,” Wang says of his fascination with the computer. “And sometimes it can be a weapon.” He was pursuing a doctorate in engineering at the University of Delaware when he discovered Friendster in 2003. Once he saw social networks on the Internet, he decided to leave early and go back to China. “I was very excited about social networking. Because I studied computer networking,” Wang says. “I saw this is going to be the new infrastructure of how information flows, above computer networks.

His first effort at building a social network with his friends in 2004 wasn’t an exact clone of Friendster, which was the problem: “The original concept came from Friendster and social networking. But the look of the Web site is original. And pretty ugly.” It failed.

By the summer of 2005 Wang and his friends, one from Tsinghua University and one from high school, were planning another site, a college social network. Using his University of Delaware e-mail address, Wang had gotten an account with what was then The Facebook. With Xiaonei they copied The Facebook precisely.

At that time we were still three people and no designers. We were all engineers,” Wang explains. The cloner was born. Less than a year later, unable to raise money or cope with rising expenses, Wang agreed to sell Xiaonei to Oak Pacific Interactive. Wang does not disclose the sum, but it was perhaps $4 million. Whatever the price, the deal proved to be a steal for Oak Pacific.

I prefer to look forward,” Wang says now. “I like to create, build things.

Copying Western Internet businesses is an oft-beaten path to success in China, where the large customer base, the language barrier and political obstacles for foreigners make it a promising market for domestic players. Groupon is especially conducive to cloning because it generates cash flow from day one, and the Chinese market already had experience with group-buying specials long before Groupon started in the U.S. But the Chinese market also loves to replicate potentially profitable businesses, both offline and online, until competition threatens to bury the whole lot. This leaves stand-alone sites vulnerable to profitable Internet conglomerates like Tencent and Alibaba Group.

Wang Xing : Founder of Xiaonei, Fanfou, and Meituan Photo Courtesy Sohu.

Wang Xing : Founder of Xiaonei, Fanfou, and Meituan Photo Courtesy Sohu.

The group-buying marketplace is rife with scandal stories about exaggerated sales or, worse, dissatisfied customers. Big names like Lashou and Meituan take the brunt of the bad publicity, including a national television expose on “consumer day” in March that attacked both. (Wang won some praise for appearing on TV after that show to address the “tricks” of the group-buying business.)

Still, investors are willing to reward market leaders, even if they lose huge sums to get there. Witness Youku.com, a stand-alone video site with many competitors and distant expectations of its first profit; it is worth more than $6 billion on the New York Stock Exchange.

 

Copy That

Groupon’s deal-a-day group discount business model has been copied around the world but nowhere more vigorously than in China. Meituan was among the first.

GROUPON (FROM “GROUP COUPON”)

Founder: Andrew Mason, 30, born in Pittsburgh, Pennsylvania.

Employees: 6,000.

Projected coupon sales for 2011: $3 billion to $4 billion.

Revenue share from coupon sales: 30% to 50%.

Recent deal: Bus ride from New York to Washington, D.C. for $10, valued at $20.

 

MEITUAN (MEANING “BEAUTIFUL GROUP”)

Founder: Wang Xing, 32, born in Longyan, Fujian Province.

Employees: 1,400, plus 300 franchised sales agents throughout China.

Projected coupon sales for 2011: $150 million to $230 million.

Revenue share from coupon sales: Less than 10%.

Recent deal: Japanese meal for two in Beijing for $26, valued at $106. [1]

 





Meituan Dianping: Little-known Chinese tech startup valued at $30bn

Meituan Dianping resembles a mashup of Groupon, Yelp, Foodpanda and Uber Eats. China’s Meituan Dianping just became the world’s fourth-most valuable startup, reaching a $30bn (£22bn) valuation that puts it ahead of high-fliers like Airbnb and Space X.

Never heard of Meituan? You’re not alone. The Beijing-based company, led by Wang Xing, is almost unknown beyond its home country. It delivers food to people’s homes, sells groceries and movie tickets, provides reviews of restaurants, and markets discounts to consumers who buy in groups. It’s a sort of mashup of Groupon, Yelp, Foodpanda and Uber Eats.

Meituan’s appeal for investors is its dominant position in a market of more than a billion people. It was formed through the 2015 merger of Meituan and Dianping, creating the leading player for internet-based services ordered via smartphone apps. It raised $4bn in the latest round from Tencent, Sequoia Capital and US travel giant Priceline.

It’s a quasi-monopoly built on the stomachs of 1.4 billion people,” said Keith Pogson, global assurance leader for banking and capital markets in Hong Kong at consultant EY.

Wang started Meituan.com in 2010 as a group-buying site similar to Groupon, where people can get discounts by buying electronics or restaurant meals together. Dianping was founded in 2003 in Shanghai with reviews of restaurants and other local businesses, then diversified into group discounts. The companies were valued at $15bn when they merged two years ago.

The combined companies have far surpassed their US peers. Chicago-based Groupon, once a sensation in the US, has dropped to a market value of less than $3bn. Yelp, based in San Francisco, has tumbled from its peak in 2014 to $3.6bn.

Meituan Dianping has expanded well beyond its original businesses. With a few taps to navigate its smartphone apps, Chinese customers can order up hot meals, groceries, massages, haircuts and manicures at home or in the office. One popular service: You can get your car washed while you’re at work and it’s parked on the street — the service sends a photo to your phone to verify the job. Meituan says it now has 280 million annual active users and works with 5 million merchants.

The offerings, collectively known as online-to-offline or O2O services, may ultimately prove more successful in China than in the US. Labour costs are lower in China, cities are more densely populated and there are more people. The country’s O2O market surged 72 per cent to 762bn yuan (£87bn) last year, according to estimates from consultant IResearch.

China’s market is big enough for a company this size,” said Wang Ling, an analyst with IResearch. “After years of consolidation, Meituan is one of the few contenders in areas with gigantic revenue.

Meituan is facing increasingly stiff competition from China’s technology giants and their proxies. In particular, Alibaba has backed a rival service called Ele.me, which recently acquired Baidu’s business, Waimai. Alibaba, Tencent’s primary rival, is boosting its investment to bankroll expansions into more cities and businesses.

Meituan faces so many competitors because of its wide range of business,” said Cao Lei, director of the China E-Commerce Research Center in Hangzhou. “Lifestyle e-commerce, which includes online travel and dining reservations, is one of the fastest growing sectors in the country.

Travel is becoming the latest competitive ground. With the recent fundraising, Meituan plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. It’s also exploring opportunities to collaborate with Priceline as part of the investment. That may present a challenge to China’s biggest online travel site, Ctrip, which is backed by Baidu.

In the latest funding, Meituan also received money from Canada Pension Plan Investment Board, Trustbridge Partners, Tiger Global Management, Coatue Management and the Singaporean sovereign wealth fund GIC. Meituan said it would use the cash to expand in artificial intelligence and drone-delivery technology.

Meituan is one of the new generation of Chinese technology companies that has rapidly gained popularity thanks to the rise of smartphones. Where Baidu, Alibaba and Tencent have come to be collectively known as BAT, new media upstart Jinri Toutiao, Meituan Dianping and ride-sharing king Didi Chuxing have now earned their own acronym: TMD.

Image Courtesy ctoutiao.com

Image Courtesy ctoutiao.com

The $30bn financing ranks the company fourth in the world in startup valuations, according to CB Insights. The first three are Uber, Didi and Chinese smartphone maker Xiaomi.

EY’s Mr Pogson however cautioned that valuations in China may be getting a bit overheated. Shares of private companies like Meituan and Uber aren’t traded in liquid markets every day, so valuations change only rarely and typically go up. In addition, many of the fundraisings in China and the US are done with ratchets, or protections so that investors get compensation if the valuations fall later on.

You have to take these numbers with a grain of salt,” he says. [2]

 

This Article Curated by Benang Merah Komunikasi’s Editorial team.

We consider to take journalism ethics and contents reposting etiquette seriously, that you can find here about media ethics. We do curation article for our audiences, not for search engine bots. By addressing this growing area of concern we hope reader can be smart to filter and understand between content plagiarism and content curation method.

References Sources:

[1] Taken from The Cloner written by Gady Epstein and Lin Yang  for Forbes.

[2] Taken from Meituan Dianping: Little-known Chinese tech startup valued at $30bn written by David Ramli, Lulu Yilun Chen, Yuan Gao for Independent.

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