| Dear friends, In JC’s Newsletter, I share the articles, documentaries and books that I enjoyed the most in the last week, with some comments on how we relate to them at Alan. I do not endorse all the articles I share, they are up for debate. I’m doing it because a) I love reading, it is the way that I get most of my ideas, b) I’m already sharing those ideas with my team, and c) I would love to get your perspective on those. If you are not subscribed yet, it's right here! Share 💡JC's Newsletter If you like it, please share about it on social networks.
💡Must-read👉Pinduoduo: Rise of Social Commerce (Join Colossus) (Chinese Characteristics) (Not Boring) Growth: Our users went from 100 million to 200 million, Today we're at 788 million, in the span of fewer than six years. We tapped into the ethos of the new era of smartphones, social network, gaming, livestreaming and mobile payments to give consumers a brand new user experience that was both fun and interactive. It doesn't mean that you do it the way that other people have done it. I think trying to replicate exactly what other giants have done before would have been unwise.
➡️ It is really important to find original ways to grow. How the platform works: Videos to watch about Pinduoduo product:
➡️ Good to get inspiration from Chinese companies. You look at a listing on the platform, (...) there are usually two prices. There's going to be the standalone price so maybe for this example, say, it's 30 RMB. Then there's a team purchase price. Again, determined by the merchant so maybe the merchant prices it at, say, 24 RMB.
To unlock the team purchase price, to buy something at a team purchase price, what you as a user need to do is to just get one more person to join you in forming a team purchase. Maybe, say, I am trying to buy apples so I've initiated a team purchase and I have 24 hours for that team purchase to close. During that period, I would get nudges. I get a prompt right away after placing the order to say, "Hey, share this team purchase with your friends." I can choose the social network of my choice, whether it's QQ or WeChat and then I can just send it out to the friends whom I think would be interested.
➡️ They make it very easy to do the group purchase. The apples are shipped separately so Claire gets a box to her home and maybe I get a box and I set the address to my office. In terms of the savings, it's not so much in terms of "instead of two deliveries, it becomes one delivery." It's more the merchant, especially for fresh produce, they now have so much more visibility.
When you think about manufactured goods, that potentially has ramifications for the manufacturer in terms of economies of scale. As you drive more economies of scale, the price may be even better over time. That then creates even more demand. That's kind of a virtuous cycle that we have going.
➡️ Love it! ➡️ What are the Health high frequency topics? How to get to “Tooth Brush” effect? How they reduced the price at every touchpoint: The common brand association people have with PDD is low prices, and in the retail world with a large, price-sensitive population, that is an attractive identity.
➡️ Very important to define what is our identity. At the upstream, we work with farmers and local partners to reorganize small-scale farms into co- operatives and introduce know-how and technology in sustainable and precision farming to achieve better efficiency and economies of scale. At the midstream, we continue to explore potential collaboration with logistics companies to develop a nationwide logistics network optimized for the delivery of perishable agricultural goods. At the downstream, we help farmers sell directly to our users and provide trainings to farmers on operating online agriculture business. We seek to create long-term structural changes that would improve our users’ experience in buying agricultural products online and contribute to the value creation of the agriculture industry.”
➡️ I like this split between upstream, midstream and downstream to think about the Healthcare System. It is an interesting framework. ➡️ Who are our middlemen? How do you cut costs in healthcare while improving outcomes? From utility to daily usage: We don't want the app to just be something that you only fire up when you have a fixed thing that you want to buy like, "Okay. Need more toilet paper. Okay, open up the app." It might just be something that you turn to when you have some idle time, you're waiting for the bus, you've got a little bit of time to kill and we can offer you different experiences.
Snackpass, a food app for college campuses, has built social experiences into their product. Students can send gifts to each other or hatch virtual pets together by ordering food via the app. These interactive experiences encourage increased usage of the company’s product.
➡️ How to gamify and not be a utility. There are games on the platform that you can play. That is also very tightly woven with the shopping experience. There's Duo Duo Orchard, for instance, which is a game that we've had for several years now. Basically, what I describe it as to marketing people is that it is just a loyalty card, except that it's made into a game. But basically, what you're doing is you are rewarding people for engaging with the platform. You can get water droplets, virtual water droplets, for browsing product listings or making purchases from certain stores, et cetera, for performing certain actions. You can steal water droplets from your friends' orchards. The end goal is that you just want to water the tree enough times such that it bears fruit.
➡️ Some fun ideas We have other games that are also weaving sort of shopping elements but also you can just play it just for fun. We've got something that is kind of like Candy Crush. Shopping doesn't have to be very dull, it can be a way in which you actually do it with friends, you bond with friends, you learn from their experiences and you both find things that you otherwise may not have found.
Social impact: ➡️ The “Social” Aspect is very important, and I think we could invest more in that. Advertising business model: Be paying a platform fee which is a very low standard transaction service fee of 0.6%, that's the standard rack rate. On top of that, if they want to advertise they can actually choose from a selection of different advertising tools. We've got live streaming ads, we've got in-feed ads, we've got search ads. That doesn't mean that I need to have as many listings as some of my peers do because at the end of the day, when you're searching for a pair of jeans you're not going to look at 200 listings. You're just probably going to browse maybe the first five or ten that are the most relevant to you. You make a decision and you move on. Our recommendation engine is able to pick up on the things that people would probably be looking for in this category and then surface it to that user. That's really kind of the value proposition. Consumers can discover things and things that are value for money compared to, say, other platforms.
➡️ How can we better recommend the next steps more to our members? "Do we have a target number of brands or target number of merchants, and do we feel disadvantaged versus other platforms who have a longer history and more merchants selling things on their platform?" I think our answer's always that it's not so much about the number of listings that you have, it is really about getting the right mix of listings.
Profitability: Bears would point out that PDD is still unprofitable, even at this massive scale. That’s true, but because of its model -- it collects cash from buyers upfront before paying out merchants -- it generates a ton of cash. PDD generated $3.8B in Free Cash Flow (FCF) in 2020,
Competitions: Or maybe through initiatives like our Smart Agri Competition which we organized for the first time last year, where we actually had young people with AI, machine learning sort of backgrounds going head to head versus traditional strawberry growing teams with decades of experience. It's like man versus machine. At the end of the day, before the competition even ended the traditional teams, saw right next to them that the AI team's greenhouse was able to produce almost three times as much strawberries in terms of yield.
Misc:
🏯 Building a company👉 How to write the best memos (Gokul Rajaram) The best memos and decks are written in the form of a conclusion followed by a series of assertions supporting the conclusion. Each assertion should have a list of evidence that reinforces that assertion. End the memo with the key risks to any of the assertions, or the validity of the evidence. For example: conclusion: Startup X is on track to become a $10B company in 5 years because: assertion 1: we have figured out scaled customer acquisition [evidence] assertion 2: customers retain very well once we acquire them [evidence] assertion 3: the market is massive and we can grow 1000x from here [evidence] Assertion 4: we have rendered the competition irrelevant [evidence] Assertion 5: we have the best team in the business [evidence]
Avoid slides or sections with titles like “Team” or “Growth” That’s neither an assertion nor evidence. It’s just a passive word and doesn’t convey anything that furthers the story you want to tell. To summarize: start with the conclusion first frame the document as a set of assertions provide a logical chain of evidence to support each assertion Sometimes the conclusion can be a recommendation (eg in a memo to the exec team) but the rest of the format remains the same.
👉Benedict's Newsletter (Ben Evans)
🗞 In the news📱Technology👉Facebook Researchers Hope to Bring Together Two Foes: Encryption and Ads (The Information) Facebook is one of several technology giants, including Microsoft, Amazon and Google, now researching an emerging field known as homomorphic encryption. Researchers hope the technology will allow companies to analyze personal information, including medical records and financial data, while keeping the information encrypted and protected from cybersecurity threats or, in Facebook’s case, leaks to advertisers or other parties. That includes Hao Chen, another senior Microsoft researcher of homomorphic encryption, who joined her team in June. The company has hired three other homomorphic encryption experts in the past two years: former Clemson University researcher Benjamin Case, former Harvard University researcher James Honaker, and former University of South Florida researcher Mohammad Al-Rubaie.
🏥 Healthcare👉 Hinge raised $600 million at a $6.2 billion valuation from Coatue and Tiger Global (Hinge) Hinge now has ~575 enterprise customers, doubling its customer base year-over-year. It would seem as though we're nearing an S-1 filing from Hinge, and it'll be interesting to see how they articulate growth strategy from here. $6.2 billion is a massive valuation to go to public market investors with if the play is continuing to go deep in MSK - I would imagine we'll see them articulate plans to branch out. I'd be willing to wager that they use some of this funding to make an acquisition outside of the MSK space pre-IPO as a proof point for future growth.
👉A new Medicare program promises to be a 'huge' revenue opportunity for primary-care upstarts, but profiting from it won't be easy (Business Insider) Experts said the program is a big deal because it's the first Medicare test that completely transforms how doctors caring for traditional Medicare patients get paid. Instead of billing for every single doctor's visit or lab test, providers get a fixed budget to work within, which encourages them to keep patients healthy. Because of these fixed payments, analysts see big dollar signs in the futures of participating primary-care companies. There are various payment arrangements that organizations can enter into, but in general, companies that participate in the direct-contracting program are held accountable for the cost and quality of their patients' care. They receive set monthly payments for each patient under an arrangement known as capitation.
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