INSUBCONTINENT EXCLUSIVE:
Hello and welcome back to TechCrunch China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to
people in the rest of the world
Last week, we looked at how Alibaba and Tencent fared in the last quarter; the talk in Silicon Valley and Beijing this week is on Y
Combinator sudden retreat from China
We will also discuss the enduring food delivery war in the country later.
Brief adventure in the East
The storied Silicon Valley accelerator
Y Combinator announced the closure of its China unit just a little over a year after it entered the country
In a vague statement posted on its official blog, the organization said the decision came amid a change in leadership
Sam Altman, its former president who hired legendary artificial intelligence scientist Lu Qi to initiate the China operation, recently left
his high-profile role to join research outfit OpenAI
With that, YC has since refocused its energy to support &local and international startups from our headquarters in Silicon Valley.&
What was
untold is the insurmountable challenge that multinationals face in their attempt to win in a wildly different market
Lu Qi, who wore management hats at Baidu and Microsoft before joining YC, was clearly aware of the obstacles when he said in an interview
(in Chinese) in May that &multinational corporations in China have almost been wiped out
They almost never successfully land in China.& The prescription, he believes, is to build a local team that given full autonomy to make
decisions around products, operations, and the business.
A former executive at an American company China branch, who asked to remain
anonymous, argued that Lu Qi one-man effort can&t be enough to beat the curse of multinationals& path in China
&All I can say is: Lu has taken a detour
Going independent is the best decision
When it comes to whether Chinese startups are suited for mentorship, or whether incubators bring value to China, these are separate
questions.&
What curious is that YC China seemed to have been given a meaningful level of freedom before the split
&Thanks to Sam Altman and the U.S
team, who agreed with my view and supported with much preparation, YC China is notonly able to enjoy key resources from YC U.S
but can also operate at a completely independent capacity,& Lu said in the May interview.
Moving on, the old YC China team will join Lu Qi
to fund new companies under a newly minted program, MiraclePlus, announced YC China via a Wechat post (in Chinese)
The initiative has set up its own fund, team, entity and operational team
The deep ties that Lu has fostered with YC will continue to benefit his new portfolio, which will receive &support& from the YC
headquarters, though neither party elaborated on what that means.
Alibaba food delivery nemesis
The food delivery war in China is still
dragging on two years after the major consolidation that left the market with two major players
Meituan, the local services company backed by Tencent, has managed to attain an expanding share against Alibaba-owned Ele.me
According to third-party data (in Chinese) provided by Trustdata, Meituan accounted for 65.1% of China overall food delivery orders during
the second quarter, steadily rising from just under 60% a year ago
Ele.me, on the other hand, has lost nearly 10% of the market, slumping to 27.4% from 36% a year ago.
In terms of monetization, Meituan
generated 15.6 billion yuan ($2.2 billion) in revenue from its food delivery segment in the quarter ended September 30
That dwarfs Ele.me, which racked up 6.8 billion yuan ($970 million) during the same period
Both are growing north of 30% year-over-year.
Source: Meituan
This may not be all that surprising given Alibaba has arguably more imminent
The e-commerce leader has been consumed by the rise of Pinduoduo, which has launched an assault on China low-tier cities with its
ultra-cheap products and social-driven online shopping experience
Meituan, on the other hand, is fixated on beefing up its main turf of on-demand neighborhood services after divesting its costly
bike-sharing endeavor.
When both contestants have the capital to burn through — as they have demonstrated through heavily subsidizing
customers and restaurants — the race comes down to which has greater control of user traffic
Meituan holds a competitive edge thanks to its merger with Dianping, a leading restaurant review app akin to Yelp, back in 2015
Dianping today operates as a standalone brand but its food app is deeply integrated with Meituan delivery services
For example, hundreds of millions of users are able to place Meituan-powered food delivery orders straight from Dianping.
Alibaba and
Meituan used to be on more friendly terms just a few years ago
In 2011, the e-commerce giant participated in Meituan $50 million Series B financing
Before long, the two clashed over control of the company
Alibaba is known to impose a heavy hand on its portfolio companies by taking up majority stakes and reshuffling the company with new
That because Alibaba believes that &only when you operate can you generate synergies and really create exponential value,& said vice
chairman Joe Tsai in an interview
&Whereas if you just make a financial investment, you&re counting an internal rate of return
You&re not creating real value.&
Ele.me lived through that transformation
As of September, Alibaba has reportedly (in Chinese) completed replacing Ele.me management with its pool of appointed personnel
Ele.me founder Zhang Xuhao left the company with billions of yuan in cash and joined a venture capital firm (in Chinese).
Meituan founder
Wang Xing had more unfettered pursuits
In a later financing round, he refused to accept Alibaba condition for portfolio companies to eschew Tencent investments, a strategy of the
giant to hobble its archrival
That botched the partnership and Alibaba has since been gradually offloading its Meituan shares but still held onto small amounts,according
to Wang in 2017, &to create trouble& for Meituan going forward.
