Since Wang Xing founded Meituan as a Groupon clone eight years ago, he has transformed the startup into a one-of-a-kind online services marketplace valued at $30 billion. Now, in his quest to become the next king of China's Internet, he is going head-to-head with China’s biggest and best-funded tech companies, including Alibaba and Didi Chuxing.
In his first interview with a Western media publication since 2015, the 39-year-old entrepreneur said he aims to double his user base, which currently offers everything from food delivery to movie tickets to wedding photography to more than 300 million Chinese consumers. Mr. Wang said he isn’t daunted by the resources of his deep-pocketed rivals. Instead, he says, he is just following China’s emerging middle class.
• China’s Meituan takes on Alibaba, Didi
• Online services startup aims to double user base
• Expansion includes ride hailing, travel services
“When you look at all the vertical categories, they more or less share the same user base,” he said. “Who wants to go out to eat, who wants to order food, who wants to watch movies, who wants to travel, who wants to hire a car? The same customer base.”
Mr. Wang is preparing Meituan—which means “beautiful group” in Chinese—for an initial public offering, likely in Hong Kong, which could value the company in a range of $60 billion to $80 billion, according to people familiar with the talks, making it one of the largest Chinese tech companies ever to go public.
“For the past several years, we worked to make sure the company is always IPO-ready,” Mr. Wang said. He declined to discuss details on timing or location of a share offering.
It is a gamble to grow revenue by expanding into new businesses ahead of a share offering. His aggressive plans to roll out ride-hailing services in major cities across China are pitting Meituan against Didi Chuxing, the second-most valuable startup in the world, which successfully beat back Uber’s foray into China. Meituan is pushing into travel services, where it is up against Nasdaq-listed Ctrip.com, which is backed by Chinese search giant Baidu and Booking Holdings. It is also competing against e-commerce giants JD.com and Alibaba in food delivery and online groceries.
With 320 million users who have made at least one purchase in the past year, Meituan is among a new generation of Chinese super apps, including Toutiao and Didi, that have demonstrated that they can develop their own huge customer base. Their emergence has upset the balance of power in China’s tech scene, which for years has been dominated by the trinity of Tencent, Alibaba and Baidu. Meituan says about 90% of its user traffic comes through its own app, which significantly lowers the cost of getting its current customers to try new services.
There is always a chance his competitors will force him into a round of expensive discounts and subsidies to protect market share, or that a newcomer will disrupt the market. Nonetheless, investors have bet billions on Mr. Wang.
Winners in a successful IPO would be Chinese social network and gaming giant Tencent and online travel and booking group Priceline, two of the largest outside shareholders in Meituan. Other backers include Sequoia Capital, Hillhouse Capital, DST Global, Fidelity, General Atlantic and Tiger Global Management.
Mr. Wang, who said he owns a little more than 10% of the company, could see his net worth rocket to $8 billion after an IPO. He points out that he has had to borrow money from his parents to cover his family’s expenses because he hasn’t sold any of his shares.
Emerging Middle Class
The core of his business is food—Meituan delivers some 20 million meals a day, accounting for half its business. But that’s not enough. “Most people eat three times a day. Forget other countries, just in China, we have 1.3 billion people,” he said in the interview. “That should be four billion meals per day.”
Mr. Wang believes his company can reach all of China’s urban middle class of roughly 650 million people, among whom smartphones are nearly universal. It is an audacious goal, but China’s embrace of the internet has enabled businesses at a scale rarely seen before. Tencent has shown the possibilities with the social network WeChat, which recently hit one billion monthly active users. Alibaba says it has 580 million monthly active users.
It will cost a lot to grow that big, but Mr. Wang still has money to burn. The Information reported in November the company had some $7 billion in the bank after raising $4 billion in October. Revenue for 2017 doubled to $5.4 billion on gross merchandise volume of $57 billion, the company said.
Amazon for Services
“It looks like we’re doing a lot of things, but actually we’re only doing one thing,” Mr. Wang said. “You can buy a lot of things from Amazon or [Alibaba’s] Taobao, but they’re just e-commerce platforms...for physical goods. Meituan is an e-commerce platform for services,” he said. “Which platform is going to have millions—if not billions—of transactions?”
It is likely to be a bruising fight. Late last year, a senior Didi executive called the rivalry with Meituan the “war of the century.” To entice drivers to switch, Didi has partnered with a financial institution to offer car loans for drivers on its platform.
Meituan has business licenses to offer ride hailing in 10 cities, including Nanjing, a wealthy provincial capital near Shanghai where the company started its ride-hailing business. Meituan claims to have gained one-third market share there. It offers steep discounts, and rides can cost as little as the equivalent of 50 cents. A Didi spokeswoman said it “holds a steady, absolute dominance in Nanjing's ride-hailing market across taxi and private-car hailing in terms of volume of rides, market penetration and retention of users.”
Meituan’s ride-hailing service recently expanded to Shanghai, one of China’s largest ride-hailing markets, where it also offers discounts and driver incentives. A day after it launched there, local authorities chastised the app for not following ride-hailing rules. Some Chinese media have alleged that Meituan’s app is fraudulently boosting the volume of rides. Meituan denies the allegations and says it has robust systems in place to detect and prevent fraud.
‘It looks like we’re doing a lot of things, but actually we’re only doing one thing.’
Tim Cook Ate Here
Mr. Wang, who is known at work by the nickname “Big Brother Xing,” sits among rows of computer workbenches in an office block in Beijing with few Silicon Valley-style perks. There are no free snacks or drinks. Floor space is at a premium, and job candidates interview at tables in the hallways.
An exhibition space inside the corporate headquarters on the startup’s history features a full-scale replica—including plastic food—of the dumpling restaurant in Shanghai where Mr. Wang shared a meal with Apple CEO Tim Cook last December.
The display also is a showcase for Meituan’s next push, selling software to restaurants that allows them to make reservations, ring up sales and plan their inventory. QR codes are used to scan menu items and directly bill customers’ digital wallets. The enterprise software is linked to Meituan’s app. It’s a model similar to Alibaba, which offers a host of business services to its merchants to make sure they remain committed to its online marketplace.
One of the biggest expenses for Meituan’s food delivery business is the labor cost of the 500,000 delivery men and women on the platform. Over the course of a year, they deliver some seven billion meals, their routes mapped out by machine-learning algorithms. Routes are optimized so that no order takes longer than 28 minutes. Using artificial intelligence, Meituan’s system tries to get its drivers to hit as many customers as possible along the shortest route.
As part of its research into how to deliver more meals faster, Meituan has a small team working on autonomous vehicle food delivery. Mr. Wang said that robots could be delivering food in five years. “Let’s be honest, it’s just a matter of time,” he said.
Mr. Wang speaks fluent English, honed at the University of Delaware studying computer networks. He grew up in a small city in Fujian province tinkering with radios and making copper sulfate crystals in the bathtub. He developed a fascination with computers when he was 12 at a time when few people in China owned them. With a modem, he started connecting to the handful of Chinese online bulletin boards run by Chinese tech pioneers like Tencent founder Pony Ma. He later attended Tsinghua University, considered China’s MIT, to study electronic engineering before going to the U.S.
He quit his Ph.D. studies after encountering the early social network Friendster and decided to try to start something similar in China. “I instantly saw the similarity between social networks and computer networks,” he said. In 2005, he and two former classmates next launched a Facebook copy called Xiaonei. They sold it, and it later became Renren, which listed on Nasdaq in 2011. Then, they founded a popular Twitter-like app called Fanfou in 2007. But it lost its lead after it was temporarily shuttered by authorities in 2009. Finally, in 2010, the group of friends started a group-buying app called Meituan—and quickly ran up against 5,000 local competitors, as well as foreign stalwarts like Groupon that also were entering the market.
The app took off. Early backers included Sequoia and, crucially, Alibaba, which continued to invest through several early rounds of financing. By early January 2015, investors, including Fidelity, valued Meituan at $7 billion. That summer, Alibaba and its financial affiliate Ant Financial revived a company called Koubei as a local services app with a nearly $1 billion investment. By October of that year, Meituan merged with Dianping, a restaurant-review rival that was backed by Alibaba’s rival Tencent, in a deal that valued the combined company at $18 billion.
By then, Mr. Wang had split from Alibaba. Mr. Wang said it was because Alibaba had sought more control of his company. “I said thank you, but no thanks. I want to be an independent company.”
Alibaba didn’t respond to a request for comment, but people familiar with Alibaba’s thinking contest Mr. Wang’s version of events. In the last few years, Alibaba has also bulked up its own food delivery services under Ele.me.
Mr. Wang credits part of his entrepreneurial spirit to his father, the oldest of four children who founded one of the largest cement makers in his home province. His father had dropped out of high school and taught himself farming to care for the family after his own father, a playwright, died in the first months of the upheavals sweeping China during the Cultural Revolution in the 1960s.
By the 1990s, the cement business was benefiting from the start of China’s building boom spurred by economic reforms. Father and son remain close. His father joined Mr. Wang on a recent trip to India, where he invested in a food delivery app called Swiggy.
Mr. Wang recalled a story of how on a long drive near his hometown years earlier his father pointed out all of the tunnels and bridges in China built using his cement. “He said it [in] a very calm tone, but I can see great pride,” Mr. Wang said with tears welling in his eyes. “[He] had been a builder of the country. And I think so am I.”