Meituan Dianping

Why Meituan-Dianping’s Expansion Makes Sense

By Hans Tung and Zara Zhang

Note: Hans is an early investor in Dianping, which merged with Meituan in 2015.

The Takeaway: Providing a multitude of services as a “super app” allows Meituan to generate significant revenues from merchants and avoid using capital-intensive subsidies to lower prices for consumers. This is a fundamentally sound business model that will be hard for competitors to beat. Super apps, if thoughtfully designed, can be beneficial to both the company and the consumer.

There seems to be no end to the ambitions of WANG Xing, the 39-year-old CEO of Meituan-Dianping (Meituan for short), the $30 billion Chinese company that is fast becoming a “super app” for services.

Meituan now offers at least a dozen services, from restaurant reviews and vacation home rentals to offline grocery stores. The diversity of its offerings defies any comparison to US equivalents. In March, Meituan launched its ride-hailing service in Shanghai and already has significant market share in several key markets. This month, Meituan made headlines after acquiring Mobike, one of China’s top bike-sharing companies, for $2.7 billion (plus debt of close to $1 billion). Wang’s vision for Meituan is to be an “Amazon for services” in China, and beyond.

What is Meituan-Dianping
Click here to view our full deck on Meituan-Dianping

In the US, most companies aim to tackle a single pain point for a specific type of consumer. In contrast, in China, there are several super apps like Meituan that are tackling not one, but a dozen pain points for a broad base of consumers. Yelp does offer more services than most US apps, but it still falls short of Meituan’s offerings (see below). Granted, users in the US and China have different consumption habits, and many commentators in China have called Meituan “unfocused.” But US companies can still draw a lesson from companies like Meituan that have cleverly taken advantage of the synergy among various consumer services, creating a varied but sound business model.

Yelp vs Meituan
Click here to view our full deck on Meituan-Dianping

Meituan’s secret weapon lies in its “one-stop shop” approach. Because Meituan offers so many services, it gives merchants multiple channels to reach the consumer. Merchants can sponsor Groupon deals on the Meituan app, advertise next to reviews on the Dianping app, and even offer consumers free rides to their premises through its ride-hailing service. For example, restaurants in remote areas could attract new customers by offering free rides so customers can easily get to the restaurants. Instead of paying to advertise on search engines like Baidu, merchants may reach customers more effectively by partnering with Meituan on multiple fronts instead. Many merchants have high margins but lack volume, and are thus willing to offer discounts on Meituan to get more orders.

Having multiple channels allows Meituan to generate significant revenues from merchants and avoid using capital-intensive subsidies to lower prices for consumers. This is a fundamentally sound business model that will be hard for competitors to beat.

Meituan offers merchants more channels
Click here to view our full deck on Meituan-Dianping

For companies that only offer one service, such as ride sharing, reaching profitability requires either raising prices on consumers or paying drivers less. Whenever it lowers prices, it becomes capital intensive. But Meituan can rely on a new source of subsidy in the form of marketing dollars from its merchants to lower the price of ride-sharing services for consumers. The lesson is that companies offering a single service may offer clear value propositions to users but will have inherent limitations. “Super apps”, if thoughtfully designed, can offer superior value to the company, its merchants, and consumers.

From the consumer’s point of view, if they are already using Meituan to decide which restaurant to go to, doesn’t it make sense to order a ride to that restaurant with one click, within the same app? If they are using Meituan to rent a vacation home, doesn’t it make sense to book the flight within the same app?

As Wang has said before, “It’s the same people who go to restaurants, order food delivery, and hail taxis. It looks like I’m doing everything. But I’m only doing one thing: an online platform that sells services.”

 

Note: Didi Chuxing, Airbnb, Ctrip, Bytedance (Toutiao), Meili, and Hellobike are GGV portfolio companies.

Reference: Wang Xing’s interview with Caijing in June, 2017 (link in Chinese)

For more on Meituan-Dianping, view our deck here or listen to Zhang Tao, founder of Dianping, discuss its mega-merger with Meituan in 2015 on the 996 Podcast hosted by Hans and Zara, available on iTunes, Overcast, SoundCloud, and wherever else you listen to podcasts.

We also write a weekly email newsletter on tech in China. Subscribe at 996.ggvc.com.

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