“When you get to a certain scale, the conglomerates need to provide as much autonomy as possible to each individual unit so that they can compete effectively in their space while thinking about the shared asset that they can leverage. Is it because they are concentrated in a specific set of industries that they have supplier negotiation leverage? They can think about where else in the value chain they can attack. Is it that they have financing leverage? They have access to a better cost of capital. Is there a customer database they can leverage and cross-sell more effectively? Trying to find things that enhance their advantage is where you would want to see them vs. trying to pick too many disparate things to do. You might think like you could do that too, but then there's a question of when you stack rank all the things you could possibly do, what is your current set of assets lend itself best to gives you the best chance of winning.” - Shiyan Koh
“Super apps are quite similar to conglomerates. We have a bunch of capital from this case from venture capital and the private markets that let us expand. There are a bunch of verticals that we believe we can execute this as well. We can be our first customers and we can cross-pollinate the user base. It was always like the devil is in the details and execution in any dynamic, because you mentioned, for conglomerates, you're often very much your own customer. A lot of the synergy really happens from a cost perspective because you can always vertically integrate. You can buy out your suppliers and your customers. You vertically integrate.” - Jeremy Au
“Costco is an international mega-mart. You go in and you're buying food items and clothing, but then as you check out and you exit the Costco warehouse, there's a whole line of services. You can buy a car from Costco. You can buy business insurance. You can get crazy amounts of things and I think that's the only example that I've seen where, because they've built such a trusted relationship with you and the entire premise of it is that they will sell everything to you at basically cost plus a small, tiny margin, it is somehow like they've trained their members over the decades that, it's not that weird to buy business insurance from the same place that you buy Cheetos. Whereas, in the context of Grab, it's a much younger company, so we don't have that depth of relationship yet, but when I am buying a ride, I'm definitely not thinking about investing. When I'm thinking about investing, I'm not like, ‘Hey, I should open my Grab app.’” - Shiyan Koh
1. Conglomerate Underperformance: Shiyan and Jeremy discuss the Southeast Asia report by Bain & Company, diving into the transformation of conglomerates – entities that once stood as beacons of success and now grapple with dwindling performances. They touch on potential causes of underperformance such as the challenges faced in managing diverse business units, rapid technological advancements, and the rise of competitors. They also talk about key success factors conglomerates need to focus on enhancing core competencies, leveraging synergies across business units, and maintaining a robust governance structure. They emphasized that conglomerates must realign their strategies with the changing business environment.
2. Super Apps and Conglomerate Parallels: Shiyan and Jeremy delve into the similarities between the growth strategies of super apps and traditional conglomerates, both aiming to be the go-to solution for a wide range of user needs. For super apps, this means integrating diverse services like e-commerce, ride-hailing, food delivery, and financial services into one seamless platform to drive user engagement, increase stickiness, and maximize transaction value. However, just as conglomerates faced challenges in managing diverse business units and ensuring consistent quality across all ventures, super apps also grapple with the complexities of offering multifaceted services while retaining user trust and ensuring optimal user experience.
3. Building Trust with Users: Shiyan spotlights Costso’s approach to cultivating and maintaining a loyal customer base. They underline that businesses should focus on curating offerings that genuinely align with users' needs and prioritizing their interests above all else, rather than pushing products and services. They discuss that organic alignment is the cornerstone of a long-lasting, trusted relationship and that adapting to shifts in user interests can sustain relevance in their markets, keeping them ahead of competitors.
They also talk about biotech as an underexplored area in the region, the evolution of game distributors and publishers, the regulatory hurdles startups face across different countries, the gamification of e-commerce, and the behavioral economics behind app designs.
Supported by Ringkas
Ringkas is a digital mortgage platform aiming to solve the access to financing problem for home seekers in Indonesia and Southeast Asia. Ringkas currently collaborates with all major Banks in Indonesia and the largest Property Developers across more than 15 cities. Ringkas vision is to democratize home ownership and create more than 100 million homeowners. Don't just dream about owning a home. Make it a reality. Explore more at www.ringkas.co.id
(02:00) Jeremy Au:
(02:01) Shiyan Koh:
Morning Jeremy, how's it going?
(02:04) Jeremy Au:
Good. You had a wonderful holiday. You want to share a little bit about that?
(02:07) Shiyan Koh:
Oh my goodness. Well, yeah, I mean after Camp Hustle, I stayed a couple days, my daughter had her birthday. And so I gave her the choice, do you want a birthday party or do you want a trip and she wisely chose a trip telling me, " mama I have many more birthdays to come." So I got out of planning a birthday party, which was a win for me and we got to spend really nice quality time together for a couple days in Bali.
(02:29) Jeremy Au:
Yeah for myself I'm preparing to go back to the Singapore army reservist. So it's been a while. And I think it's been interesting just ramping up, getting my postings and so forth. So fun times.
(02:41) Shiyan Koh:
Well, you wanted it, right? They'd forgotten about you, and you reminded them that you existed and was like, hey, guys, I'm still here. I'm ready to do some service.
(02:49) Jeremy Au:
Yes. I did volunteer. So, you know, I think what's interesting of course is that, before we go off let's talk a little bit about technology in Asia. So that was, two reports that came out over the past month, the first being the Southeast Asia Tech in Asia conference report. That about a couple dozen pages. They named it SEA Marks the Spot. So I like how everyone's got, could figure out that name right that we have here. I thought it was quite a good snapshot, high level summary, of course of the various countries. And then I think it was a handy summary about what was going on. What did you think about it, Shiyan?
(03:23) Shiyan Koh:
Yeah, I think it's pretty consistent with other regional reports we've reviewed in the past. Nothing jumped out as like, hey, that's so weird. What's going on there? But I think it's a pretty consistent picture.
(03:33) Jeremy Au:
I think the one interesting thing that they pointed out was biotech. Obviously they covered FinTech and other plays that were available. They went country by country. But I thought it was interesting for them to just quickly give that snapshot of some of the biotech plays because I think most folks don't really think about Southeast Asia, in terms of biotech. Of course, when you talk about biotech, actually you're also talking primarily about the Singapore cluster. It's there as well. There's also work in the US and global partners, right? So I thought it was interesting play and I thought, there's an interesting cluster that I hadn't necessarily always thought about.
(04:00) Shiyan Koh:
Yeah, we don't cover it through our funds a lot. So, definitely an area where I'm pretty ignorant.
(04:05) Jeremy Au:
Yeah, maybe next time we can have someone to help us with that as well. On that note, I think the bigger report that we're quite excited to get into was the Southeast Asia conglomerates failed to keep pace with pure plays by Bain & Company. That's the title they had. It was written by John Pierre Fellenbok and Till Vestring. So, JP is actually a fellow volunteer with me at the Harvard MBA Club of Singapore. We're both on the board of directors, but I think they wrote a very interesting article talking about, I'll give a summary of it, which is that the top line summary they said that over the past decade, most conglomerates in Southeast Asia underperform.
(04:38) Shiyan Koh:
They started tracking it because they outperformed.
(04:40) Jeremy Au:
Yeah, that's true. So, what the report shares is that Bain started tracking Southeast Asia's conglomerates in 2003 because they were an anomaly, and what that meant was that they actually outperformed conglomerates in all the parts of the world and even outperformed pure play companies in Southeast Asia, multiple criteria, including, shareholder returns.
And so, between 2003 to 2012, the shareholder returns on an annualized basis was eight percentage points higher than that of the regional pure plays, which is kind of crazy. But what's interesting is that their findings was that over the past decade, these conglomerates have began underperforming pure plays in all of the dimensions of shareholder returns, revenue growth, margins, and multiples. And so it's been an interesting dynamic where their findings were that conglomerates have struggled to navigate low growth environments and market volatility, and of course, build out some set of recommendations. So Shiyan, what do you think about conglomerates in general?
(05:29) Shiyan Koh:
Yeah, I think this is pretty expected, which is that they started tracking it because it was weird that the conglomerates were outperforming. And now you're getting the reversion to the mean where as the ecosystem matures and becomes more competitive, the benefits of size and diversification and government relationships reduce as pure plays basically are able to focus and allocate capital more effectively in that specific industry.
I think this is the challenge of any sort of business or capital allocation exercise, which is like, the more diverse the activities become, the harder it is to make trade offs across them. And so you're sub optimizing trade offs across them unless you can really devolve decision making power down to people who are actually on the ground. But the part of being a conglomerate, generally, is that you want to be able to control lots of different things and so I think that's one aspect of it, it's like the capital allocation part, and I think the other part is probably talent, which is that you want. It may be more challenging as ecosystems mature for conglomerates to attract talent because if you are top talent, you want to go work for the pure play so that you can focus on one thing and do that aggressively rather than having to fight for capital and resources at a conglomerate structure.
(06:39) Jeremy Au:
Yeah, I think it's definitely true. And what they have the findings for is that over the past 10 years, pure plays have performed at 11%, which talks about efficiency, the ability to hunt and pursue their goals without too much overhead, whereas conglomerates only performed at 4 percent in terms of a total analyzed shareholder return which is actually a really large gap. So it's almost like total inversion of that difference. I guess when I think about this numbers, of course, I always think to myself a little bit as well as like, the past 10 years also have been a weird year in terms of interest rates and so forth.
So I guess for me, in my head, I'm still passing a bit, which is, I definitely agree with you about that reversion to mean, I think in American management literature, there's always been a very strong focus on pure plays as a stronger approach to do what needs to be done. I'm also wondering in my head where the lower interest rates over that past decade played a significant part. I'm just, again, I'm highly speculating here, but it's just something that I'm aware that the past decade was an interesting one.
(07:33) Shiyan Koh:
I think it's possible that lower interest rates gave pure plays access to cheaper capital than would have been normally available and that one of the benefits maybe a conglomerate had initially is that their size and their historical maturity gave them access to cheaper capital, which is like an additional sort of compounded advantage that you might have. And so, it's possible that the low interest rate environment took away 1 of those advantages to enable the pure place to get a little bit more heft and competitive footing against the pure plays.
(08:00) Jeremy Au:
Yeah, I think that makes a lot of sense. And historically, that's what we learned, is that, conglomerates really came to existence because, they obviously started out as a pure play company once. They did well, then they started building out that management layer, which is a talent advantage, but also started building out their financial and they start reinvesting profits from that core business into other businesses that are relatively capital staff and then that's how you build up that dominance across multiple plays so that the natural organic history, like you said, is capital reinvestment advantage, especially in capital staff countries. And I think that's an interesting dynamic here, as I was reading this, of this chart that they have, but it said that the conglomerate's advantages faded in more developed economies first.
So even within Southeast Asia, there's actually that chronological step by step. So, Thailand, PR place overtook conglomerates in 2008, Malaysia in 2011, Singapore in 2014, Indonesia in 2015, Philippines in 2016, and Vietnam in 2017. The advantages faded in more developed economies first.
(08:54) Shiyan Koh:
Yeah, I mean, that makes a ton of sense to me. I'm surprised that Singapore is after Thailand.
(09:00) Jeremy Au:
It's like now we want to compare them conglomerate to conglomerate.
(09:03) Shiyan Koh:
Yeah. I think there's that sort of that work on what is the complexity of an economy as a measure of how advanced it is. And so I guess I would have imagined that Singapore would have earlier than some of these other economies rather than middle of the pack.
(09:18) Jeremy Au:
Yeah. So they mentioned the fact that there are better conglomerates, and stronger, so they call them all by the stars, but basically they were at top quarter status. They were able to increase the revenue, defend the margins, and expand the multiples, even in this lower growth environment. They mentioned names like Sainamas and Kelby in Indonesia, BDMS Group and DKSH Holdings in Thailand, Sunway Group and Hong Leong Group in Malaysia, and Enrique Razon Group in the Philippines. So I thought that was all just fascinating dynamics there where it was just saying that the top quartile companies are still able to do so.
So it's not that, I mean, the easy takeaway is like pure plays or better, always do pure plays and conglomerate should unbundle and sell off and spin off into pure plays so that's one part, but I think they're also saying that, Hey, there are conglomerates who can actually perform well as a conglomerate. So I thought that was interesting.
When you think about these conglomerates, how do you think about how conglomerates should do well from your perspective?
(10:07) Shiyan Koh:
I think when you get to a certain scale, I think the conglomerates just need to provide as much autonomy as possible to each individual unit so that they can compete effectively in their space, while thinking about what is the shared asset that they can leverage. So is it because they are concentrated in a specific set of industries, they have supplier negotiation leverage? So they can think about where else in the value chain they can attack. Is it that they have financing leverage ? They have access to better cost of capital. Is it customers? Is there a customer database they can leverage and cross sell more effectively? So trying to find things that enhance their advantage is probably where you would want to see them versus trying to pick too many disparate things to do. Because you're like, yeah, why not? We could do that. But then I think there's a question of when you stack rank all the things you possibly could do, what is your current set of assets lend itself best to gives you the best chance of winning.
(10:58) Jeremy Au:
Yeah, I think question of synergy across all of it is actually the most key question, right? Because if you look at companies, dimension, other top quarter companies like Philmar Corporation, Philippines, Amtek, Indonesia, Vingroup, Vietnam. So they're all generally in healthcare technology or renewable energy. I think these are all dynamics where we sit down and say, Okay, it's important to be in categories that are growing fast. So healthcare, renewable energy, two is the synergies you mentioned. I think they're both revenue and cost synergies that are there. I think cost synergies, I think that's a big issue for a lot of conglomerates, is that there's a lot of cost dis synergies. Just as they add more businesses, they have more overhead, they tend to have larger HQ, they tend to react slower. So I think that's one of the dis synergies that they have.
I think on the revenue synergies, that's where they have. So we talked about capital allocation, supposed to be better or more available, like you said, customer base, government relations, all these are important.
(11:51) Shiyan Koh:
I think the other one is like we've seen in various parts of Southeast Asia is that because their businesses span quite a lot of employees, they can often be initial customers for new businesses. So they can get something. They can bootstrap a new business quickly by using their own employees as initial customers as well.
(12:09) Jeremy Au: Yeah. Actually, that's a really true point because I think one way they often do it is the idea become downstream integration of vertical integration. So they go up where they take over the supplies, in which case they are their own customers or they go move downstream and then they can use that to go down the processing value chain as well.
(12:25) Shiyan Koh: Yep, exactly. Do you have a conglomerate, Jeremy, that you're trying to optimize?
(13:05) Jeremy Au:
I think what's interesting is that obviously for these conglomerates they've got to hustle, they've got to stay on top of it. And I think there's two interesting pieces, one is that comes up for technology is that technology companies are by definition pure place because the startups they're growing, they're building up a vertical business on average.
But two, of course, is that these conglomerates, I have to make a decision about how to competing with them, how to collaborate with them as a partnership, or maybe even acquired that right in order to stay on top of the game. I think we see that quite a bit in the U. S. as well.
(13:31) Shiyan Koh:
Yeah, I think the one interesting thing, is that in Southeast Asia and in China, we have these things called super apps, which may be kind of like a modern day attempt at a conglomerate, where you're trying to leverage your initial traction in one vertical to be able to bootstrap others. And, there's always been these questions, like, why doesn't this, why don't you have a super app in the U. S.? Why don't you have a super app in Europe, right? More developed economies. And I think the answer's always been, in more emerging markets, there's less competition, but there's also less infrastructure built.
And so, if you already went to the trouble of building infrastructure for your first vertical you want to leverage it, and so you look at what other places you can expand into, and so you get these much more horizontal plays than you see in more developed economies. But I think the jury is still out on the technology conglomerate and whether or not those advantages can be leveraged effectively. And so I think we've seen Grab and Gojek and Sea Group all try like a bunch of different things. I think Sea group has been more focused and disciplined in the number of experiments they've been running. Whereas I think Grab and Gojek have really gone wider on the types of things that they've tried to put into that home screen which is like, do you want trip insurance? You want a loan? Do you want to invest money? Do you want to buy a movie ticket? I was like no, I just want to get a car. I just want to go from A to B. And so I think there's recent news that Grab is shutting down their consumer investing unit.
And I think that could be evidence that hey, maybe the perceived synergies of having that user base don't necessarily extend to everything, and I think this is the sort of point, which is I just want to get from A to B. Why am I going to buy investing product from you? It kind of feels very disjointed as a customer experience.
(15:07) Jeremy Au:
Yeah. I think it's true. Because what you're discussing is at a superficial shallow level. I think the logic for why, like I said, super apps, I've actually quite similar conglomerates. We have a bunch of capital from this case from venture capital, and the private markets that lets us expand. There's a bunch of verticals that we believe that we can execute this as well at, we can be our first customers and we can cross pollinate the user base and so forth and then do that. I think it was always like the devil is in the details and execution in any dynamic here, because you mentioned a great one, which was, for conglomerates, you're often very much your own customer. So you I think that a lot of the synergy really happens from a cost perspective, because you can always vertically integrate. You can buy out your suppliers, you can buy out your customers, you vertically integrate.
For example, you're doing like, paper, right? You're doing timber and wood forestry. Then you can go into paper processing. Then you can go into paper products. And then you can go adjacent, which is you can do agriculture, which is, adjacent to forestry and plantation management. So I think there's a lot of like, you can imagine, and then all this has been the same geographic area. And the truth is, with these hard assets, physical assets, obviously you're driving down costs, but you also have a density of talent and support in that region.
But I think what's interesting about super apps is that it's very flat. What I mean by that is like, let's say talk about Grab, right? You have 10 apps within the Grab app, effectively, right? You have Grab Gifts, Grab Invest in the past, which they closed. And there's all these sub apps. The truth is, if you go one level up, all the other apps are there. You have your app, Apple app store, with any store you want. Obviously you have all the other apps that you can potentially use, so the plane of competition from a customer perspective is almost like, flick of a button, and so that makes it a very interesting dynamic where I think is being thoughtful about that chain of expansion is actually like the devil is in the details.
(16:43) Shiyan Koh:
Yeah, I mean, I guess the only sort of counter example I can think of that is like Costco where it's like, Costco is like a mega-mart in the US. Actually, it's international. They've got Costcos in Australia and Taiwan and whatnot. Not in Singapore yet, though. I would love to have Costco in Singapore, but probably does not make a lot of business sense. And, you go in and you're buying food items, you're buying clothing, but then as you check out and you exit the Costco warehouse, there's this whole line of services. So you can buy a car from Costco. You could buy business insurance from Costco. You can get crazy amounts of things. And I think that's the only example that I've seen where because they've built such a trusted relationship with you and the entire premise of it is that they will sell everything to you at basically cost plus a small, tiny margin, it is somehow like they've trained their members basically over the decades that, it's not that weird to buy business insurance from the same place that you buy Cheetos, whereas, in the context of Grab, first of all, it's a much younger country, company, so we don't have that depth of relationship yet, but when I am buying a ride, I'm definitely not thinking about investing. And when I'm thinking about investing, I'm not like, hey, I should open my Grab app.
You know, it's what's the customer journey as they're making their considered purchase? And what is your sort of like right to play as the vendor of saying, Hey, you should trust me and you should do this thing. Like what, why do I believe that this is the best place for me to get an investing product versus some of the other things, like, in Indonesia with Gojek, they had. There's the rides. There's the food delivery. That's pretty common. But then there's also the services, which I think is a feature of Indonesia. Like, hey, I want a masseuse or I want laundry or I want these things. And because of the horrific traffic, it's really common to have these things come to you instead of you going to them. And it doesn't feel as big a mental leap to seek those services. But I don't know, Jeremy, have you ever bought a financial product from your rideshare app?
(18:38) Jeremy Au:
The answer is no. And I think that's why you're shutting it down, the business unit, right? , but I think it kind of goes back to your ride. So for me, what I've definitely done a cross sell you know, cross buy what we're going to call it is, I've taken a Grab going home and then, I'm exhausted from work. I definitely go in and then I go buy food as well so that it roughly arrive, maybe 10 or 20 minutes after I arrive home because I don't need to cook. And then I just freshen up and then go get my pick up my dinner from the grab delivery, and I think what's interesting, of course, is that it makes sense a little bit, at least in terms of that moment in time, but also from that perspective of Hey, you know, they already have the supply side in terms of the drivers in a ride, to delivering people and delivering packages. So there's that supply side synergy that we talked about in the conglomerate side, which is, there's that advantage that you can have. So, I think that's the opportunity that's there. I mean, if I'm in a Grab app, I'm honestly on my phone anyway for the next 10, 20, 30 minutes as well. So I think they're just trying to make sure that you can buy something. But it reminds me of the airlines, they have that gift shop that you have, like Jetstar or AirAsia or Singapore Airlines.
(19:39) Shiyan Koh:
Yeah, but that's because you're trapped, right? You're trapped on the plane. And then historically there was that weird tax free angle to it which is why there's stuff like cosmetics and booze. But, it always seems like you could do more with Duty Free. It's just such a weird collection of things. It's like, okay, here I bought a plane, and you're like, do you want La Mer face cream? Do you want bears dressed in sarong caballas for your child? It's like this so random collection of things where you're just like I don't know. It's like a really weird set of things. And now also even like the printed magazine seems super strangely outdated. Why wouldn't you just try to sell me more current things, I guess?
(20:16) Jeremy Au:
Yeah. Like you said you don't have wifi generally on the plane. So you're truly a captive audience, but you're just there for three hours or four hours. So I think it makes sense for that to try to sell you right as much as you can. That's also honestly how to get you in the food because every time I'm so bored and I'm just like, they show up, like, here's all the chips and snacks. And then I'm just like I feel I want to eat for fun. And I think that's a big moment. I think the interesting thing is if you do a grab, it's like your alternative is whatever's on your phone. So again, it goes back to your plane of competition. It's like, it costs me nothing to slide my thumb and then I can switch to any app, right? Instagram, TikTok, WhatsApp, my email, Slack. So I think there's that plane of competition. So I think that actually is an interesting dynamic, where I think, every pure play company startup looks at app stores. It's a wonderful place for discovery. But it's so crowded because every app is effectively on the same dimension. So you're just competing against some crazy apps. A lot of folks are like, Oh, my app is going to be go through the app. And I'm like, yeah, but I'm not saying it's easy to distribute, but to get that mindshare, the time.
(21:11) Shiyan Koh:
But what's your alternative ? Your alternative is a native website that no one knows like. No one goes there, right? So I feel like, I think we could decry the power of the App Store or you could decry the power of Amazon. There's this lawsuit right now. There's an anti competitive lawsuit against Amazon but like, many of those sellers wouldn't have a business without those platforms. Their alternative was actually like way worse which was to set up their own sort of either brick and mortar or commodity item website that they would then have to independently build organic traffic to, which would, they're not equipped to do right versus like, Hey, I'm just going to list this thing on Amazon if anybody searches for it and Amazon already has all those eyeballs, they're going to get there, right? Same thing for the app store, right? Every single Apple user is on the app store looking for something. So I mean, I think a lot of people don't think about distribution and distribution is a lot of work. But I think to the earlier sort of comment which is like, when can you leverage your existing customer base? And when is it just theoretically possible, but practically not actually that actionable?
(22:11) Jeremy Au:
Yeah. Two quick stories is like, for the BRAVE podcast, we tried using a different community app to stand alone, like I said, website plus standalone app did not work. People are just not used to going to those apps. So we just basically say, you know what, people are using WhatsApp, let's create a WhatsApp community group. And then, a subset of WhatsApp because people just check it so I think there's that co opting behavior that a strong distribution platform can have, and I think that's where Apple App Store can charge a toll because that's the distribution player, right? Same for Google Store. Same for WhatsApp. They don't charge a toll yet, but I'm sure that's coming down the pipes as they go through there. I think the second part of it is one of the interesting learnings I've had, honestly, over the past few months is actually how similar the stories for Sea Group and VNG Group are, right? Because they both started with games. Then they had an audience of young millennial males who were tech savvy. And so who are studying and then they follow those customers to eventually go into e commerce, to sell stuff. They are both the same dynamics where they both doing financial services to lower the cost of transactions.
And of course from that, I think that's where the story splits up a little bit because some did messaging apps. Some of them are different place, but I was just actually really surprised. And it's a broader story. It's also a Chinese conglomerate, a super app story as well where they're following this customer list around as they get richer and so forth. So I thought it was a really interesting reflection because I think with coming back from the US that's not actually a common path. You don't see Blizzard or Activision saying like, Hey, let's become a conglomerate. So I thought this is really fascinating.
(23:35) Shiyan Koh:
But I think, but the difference there, I think, is that Blizzard and Activision started out as publishers, right? Whereas Cgroup and VNG didn't. They started as distributors. They were distributing titles coming out of publishers who wanted access to Southeast Asia because it was like this new market where they didn't have pre existing relationships with gamers. And so, I think, I'm a big believer that every company's DNA is set by the founder, but also your early experiences as a company. So how you think about yourself as a business drives a lot of your business decision making. And so I would guess, and I don't know, that if you grew up as a distributor, then you think a lot about what more can I push down this channel? Not if you thought yourself as a publisher, you're like, how can I make better games?
(24:15) Jeremy Au:
Yeah. Well, I think they're trying to because the problem of being a distributor and then you're working with a publisher is that the publisher can just say goodbye. I can do this directly and go directly to consumers now because we understand the region. I think there's been a lot of debate that's been happening a lot of disintermediation of these distributors by the big game brands. So that's been an interesting trend there. And then you see these distributors investing in studios, because they're trying to find a replacement game and some of them have done well. So Arcade talking about Free Fire for Sea group have done well. And they track and keep looking for other hits. But it's an interesting dynamic where I thought one interesting analysis that I had was that they basically started to gamify shopping is one experience, but also putting shopping within gamified content has also been an interesting learning for me.
(25:00) Shiyan Koh:
Shopee is super different looking than Amazon, right? As a shopping experience with all the little mini games that you play.
(25:08) Jeremy Au:
Yeah. It's bonkers. And you know, I'm like, I don't want to collect coins. This is not a quest for me. I need to buy something. But that's how you know, I'm an old millennial, geriatric one.
(25:16) Shiyan Koh:
No, it's because you, it's because you probably came of age in a Western e-commerce model. So your sensibilities, your brain is trained towards that shopping experience. It's like when Uber went to China and they're like why is it so hard for people to use this interface? Isn't it so normal that like, hey, you just type in the address. But even like the address construct is different, right? And so like when you use like, Didi, it was like, oh no, you'll pick me up at the intersection of the ring road and this other thing, not like, hey, here's the precise address. And the interface was like, you would speak your address rather than type it and so, I feel like that's the other thing. Our habits are set by the thing that initially taught us how to do that.
(25:57) Jeremy Au:
Yeah. It's generational and that's the interesting dynamic because if you, and I think that's where it goes back to how founders and VCs also look at categories, because you look at e commerce and you're like, okay the point of e commerce is the buy stuff. But if you're gamifying it, you're basically, what you're saying is shopping is fun, right? You know, if you buy something and if something shows up, you get rewarded for it. And you want to hunt for the best deal and you want to avoid the traps. There is a game in acquisition stuff.
(26:22) Shiyan Koh:
Yeah, totally. But also if you interview Chinese consumers and you show them Western shopping apps, they say it feels cold. It's not warm. Also the colors. If you look at the color schemes, sometimes when you look at Chinese shopping, you're like, why is there so much red, orange and yellow? You don't know. You're like, ah, it's like you've been trained to the minimalist cool tones.
(26:39) Jeremy Au:
I mean, there's the whole point, right? They have all the confetti comes out when you make an acquisition. And I'm like old enough and I've been a gamer, right? And I'm just like, okay. Okay. I didn't kill an animal enemy and have spots of blood come out. And I bought something and I got confetti and then you get those boxes as well. And things like that. I'm just like, why are we having a loot box while I'm buying something?
(26:58) Shiyan Koh:
But even when you send money. You know when you send a hongbao and the little like coin sound happens?
(27:04) Jeremy Au:
(27:05) Shiyan Koh:
It's like very delightful.
(27:06) Jeremy Au:
I mean, it's delicious. I just want to have is great. So all these things. And then I was like, grab, obviously, when you order food is like, why are you craving right now? And as someone who's study a lot of behavioral economics, I'm like, I know you, you're trying to trigger me into craving something. Cause why are you craving right now? It's not like what do you want to buy? Or what sustenance shall you acquire for your family?
(27:28) Shiyan Koh:
Of course not.
(27:29) Jeremy Au:
Yeah, exactly. What are you craving?? And then, first slide is obviously,
(27:32) Shiyan Koh:
(27:33) Jeremy Au:
Fried chicken. Yeah, exactly. I mean, if you ask me, like.
(27:36) Shiyan Koh:
Healthy and fried and yummy.
(27:37) Jeremy Au:
Yeah, exactly. It was like, if the question was, what should you buy? I'll be like, I'm going to buy a salad.
(27:42) Shiyan Koh:
No, you would never do that.
(27:43) Jeremy Au:
I would, I want to, sorry. No, I don't want to, sorry. Let me clarify.
(27:47) Shiyan Koh:
You want to be the kind of person that might do that.
(27:49) Jeremy Au:
Exactly, but what I want is Jollibee, McDonald's, things like that.
(27:55) Shiyan Koh:
Do you know what I was just past a Jollibee yesterday and the tagline on the store was "Home of chickenjoy".
(28:01) Jeremy Au:
(28:01) Shiyan Koh:
(28:02) Jeremy Au:
But that's what the meals called. Talking about trade customers. I'm like, I walked by that slogan. And I'm like, Oh yeah I'm definitely ready for that. I mean, look, it's okay. The pun, it's like chicken joy, right? Enjoy chicken, joy. I think it's a good pop mentality, right?
(28:17) Shiyan Koh:
I don't get it. I was like, that's ridiculous.
(28:19) Jeremy Au:
What? How do you not get it? I think you got to eat more chicken. You got to eat more chickenjoy. And enjoy the chicken.
(28:25) Shiyan Koh:
I think turning 40 makes you feel like you should eat less fried food, basically.
(28:28) Jeremy Au:
You definitely should eat less fried food in general. You're not wrong about that. But it's like, it's an active act of will to not eat Jollibee. That's the problem for me.
(28:35) Shiyan Koh:
Yeah. So I haven't been trained on that. But yes, I do feel like the smell is very enticing. I think there were a couple more items, right? I think on the topic of consolidation and slimming down and focus on the core. So I think spend more announced another layoff. It seems like they have an acting CEO in place after the last one left. I think the CPO is now the acting CEO. And they are, again, I think focusing on trying to right size the business since they did raise a fair amount of money last year. So they probably got good runway, but trying to evaluate business options and get things to a place where you can get to a profitability.
(29:08) Jeremy Au:
Yeah, I think that companies and startups are continuing to lay off. So anecdotally, I'm definitely hearing about companies that, like in some dynamic where they just said, Hey, the fundraise isn't working out or they don't think it's gonna work out the way they want it to work out. So they're starting to take steps to do it. But of course, I think the big difference between the layoffs that we were seeing a year ago versus now is quite dramatically different. I think this is everyone's primed, prepared, resolute. Employees are like self aware that this is a possibility and generally feels like we're already at the bottom of the market. I think things should look better. I'd love to summarize the three big takeaways I got from this conversation.
The first, of course, is I thought it was fun to briefly talk about the Southeast Asia tech report and talk a little bit about the high level point of view. The second, of course, that we dug into was really about conglomerates and how we think about what's been happening in terms of the anomaly where they were outperforming pure plays in Southeast Asia, but we actually got to see that they have now underperformed over the past decade. We can see the transition over the past decade, country by country and we talked about some of the intrinsic advantages that they had about why they came about in terms of capital allocation, in terms of talent and leadership, in terms of distribution. we also talked about why they have been falling behind and what they need to do better, which is to invest in technology, get lean, restructure, maybe invest or acquire in some startups to the US companies do in order to stay ahead. And lastly, I thought it was interesting where we actually drew the parallel right between conglomerates and super apps. So we talked about some of the similar logic dimensions, but also where the logic conflict falls apart and where the advantages are for super apps are going to be all the way from Grab all the way to Sea Group and VNG. All right. Thanks, Shiyan.
(30:39) Shiyan Koh:
Awesome. Thanks, Jeremy.